Wealth Shocks, Unemployment Shocks and Consumption in the Wake of the Great Recession
AbstractWe use data from the 2009 Internet Survey of the Health and Retirement Study to examine the consumption impact of wealth shocks and unemployment during the Great Recession in the US. We find that many households experienced large capital losses in housing and in their financial portfolios, and that a non-trivial fraction of respondents have lost their job. As a consequence of these shocks, many households reduced substantially their expenditures. We estimate that the marginal propensities to consume with respect to housing and financial wealth are 1 and 3.3 percentage points, respectively. In addition, those who became unemployed reduced spending by 10 percent. We also distinguish the effect of perceived transitory and permanent wealth shocks, splitting the sample between households who think that the stock market is likely to recover in a year’s time, and those who don’t. In line with the predictions of standard models of intertemporal choice, we find that the latter group adjusted much more than the former its spending in response to financial wealth shocks.
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Bibliographic InfoPaper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 279.
Date of creation: 24 Mar 2011
Date of revision: 19 Oct 2011
Marginal Propensity to Consume; Wealth Shocks; Unemployment;
Other versions of this item:
- Christelis, Dimitris & Georgarakos, Dimitris & Jappelli, Tullio, 2011. "Wealth shocks, unemployment shocks and consumption in the wake of the Great Recession," CFS Working Paper Series 2011/27, Center for Financial Studies (CFS).
- E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-04-02 (All new papers)
- NEP-LAB-2011-04-02 (Labour Economics)
- NEP-MAC-2011-04-02 (Macroeconomics)
- NEP-URE-2011-04-02 (Urban & Real Estate Economics)
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