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The long-term effects of experienced macroeconomic shocks on wealth

Author

Listed:
  • Viola Angelini

    (University of Groningen; NETSPAR)

  • Irene Ferrari

    (Department of Economics, Ca' Foscari University of Venice; NETSPAR)

Abstract

This paper examines the long-term effects of macro-economic shocks – defined as multi-year peak-to-trough GDP declines of at least 10 percent – experienced until young adulthood on the wealth distribution and portfolio allocation of older individuals in Europe. We document that experiencing more economic depression years when young has a positive effect on wealth at older ages. By analysing individual portfolio choices, preferences and personality, we find that, while experiencing a depression makes individuals more risk averse, it also increases their financial planning horizon and conscientiousness. These results provide evidence that individuals who experienced economic depressions when young invest less in risky assets but save more, and thus tend to accumulate more wealth in the long run.

Suggested Citation

  • Viola Angelini & Irene Ferrari, 2021. "The long-term effects of experienced macroeconomic shocks on wealth," Working Papers 2021:23, Department of Economics, University of Venice "Ca' Foscari".
    • Handle: RePEc:ven:wpaper:2021:23
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    References listed on IDEAS

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    More about this item

    Keywords

    Wealth distribution; economic depressions; risk aversion; early investments;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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