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Estimation of Sensitivity of Russian Household Consumption to Permanent and Transitory Income Shocks Using Kalman Filter

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  • Anastasia Petaykina

    (Bank of Russia; RANEPA)

Abstract

This paper estimates the sensitivity of Russian household consumption to permanent and transitory income shocks with a quasi-maximum likelihood method based on the Kalman filter based on data from the monitoring of the health and economic welfare of households and individuals in the Russian Longitudinal Monitoring Survey (RLMS) of the Higher School of Economics. Estimates are presented for several specifications of labour income and total income. Consumption is found to be more sensitive to permanent earnings shocks than to permanent total income shocks, due to the greater volatility of the latter. Differences in the consumer behaviour of different social groups are also analysed, showing, in particular, that older households and households with children are more sensitive to permanent income shocks. Low-wealth households are more sensitive to permanent income shocks than high-wealth households, which may be due to precautionary savings. The difference in the consumption behaviour of small and large households may be due to the effect of an additional worker. Additional analysis of this effect reveals that households do increase the number of employed members in response to a negative income shock. Moreover, large households increase the number of working members more quickly. The study of the dynamics of household consumption behaviour is conducted through the construction of a permanent income series.

Suggested Citation

  • Anastasia Petaykina, 2023. "Estimation of Sensitivity of Russian Household Consumption to Permanent and Transitory Income Shocks Using Kalman Filter," Russian Journal of Money and Finance, Bank of Russia, vol. 82(3), pages 110-127, September.
    • Handle: RePEc:bkr:journl:v:82:y:2023:i:3:p:110-127
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    References listed on IDEAS

    as
    1. Kohei Kubota, 2021. "Partial insurance in Japan," The Japanese Economic Review, Springer, vol. 72(2), pages 299-328, April.
    2. Arpita Chatterjee & James Morley & Aarti Singh, 2021. "Estimating household consumption insurance," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 36(5), pages 628-635, August.
    3. Richard Blundell & Luigi Pistaferri & Ian Preston, 2008. "Consumption Inequality and Partial Insurance," American Economic Review, American Economic Association, vol. 98(5), pages 1887-1921, December.
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    More about this item

    Keywords

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    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • P36 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Consumer Economics; Health; Education and Training; Welfare, Income, Wealth, and Poverty

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