IDEAS home Printed from https://ideas.repec.org/a/bla/scandj/v122y2020i2p762-789.html
   My bibliography  Save this article

Consumption Responses to a Large Shock to Financial Wealth: Evidence from Italy

Author

Listed:
  • Renata Bottazzi
  • Serena Trucchi
  • Matthew Wakefield

Abstract

We estimate marginal propensities to consume from wealth shocks. We exploit large asset‐price shocks in 2007–2008 and household‐level panel data to implement instrumental variables. A fall of one euro in risky financial wealth resulted in cuts to annual total (non‐durable) consumption of 8.5–9 (5.5–5.7) cents, with small effects on food spending. Effects seem stronger for lower‐wealth or indebted households, but significant responses from wealthier households and those without mortgages are important for our baseline results. Counterfactuals indicate financial‐wealth effects were relatively important for consumption falls in Italy in 2007–2008. The estimated effects are consistent with a simulated life‐cycle model capturing the wealth shock.

Suggested Citation

  • Renata Bottazzi & Serena Trucchi & Matthew Wakefield, 2020. "Consumption Responses to a Large Shock to Financial Wealth: Evidence from Italy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(2), pages 762-789, April.
  • Handle: RePEc:bla:scandj:v:122:y:2020:i:2:p:762-789
    DOI: 10.1111/sjoe.12339
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/sjoe.12339
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Renata Bottazzi & Serena Trucchi & Matthew Wakefield, 2013. "Wealth effects and the consumption of Italian households in the Great Recession," IFS Working Papers W13/21, Institute for Fiscal Studies.
    2. Orazio Attanasio & Andrew Leicester & Matthew Wakefield, 2011. "Do House Prices Drive Consumption Growth? The Coincident Cycles Of House Prices And Consumption In The Uk," Journal of the European Economic Association, European Economic Association, vol. 9(3), pages 399-435, June.
    3. Christopher D. Carroll & Misuzu Otsuka & Jiri Slacalek, 2011. "How Large Are Housing and Financial Wealth Effects? A New Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(1), pages 55-79, February.
    4. Banks, James & Blundell, Richard & Tanner, Sarah, 1998. "Is There a Retirement-Savings Puzzle?," American Economic Review, American Economic Association, vol. 88(4), pages 769-788, September.
    5. Christelis, Dimitris & Georgarakos, Dimitris & Jappelli, Tullio, 2015. "Wealth shocks, unemployment shocks and consumption in the wake of the Great Recession," Journal of Monetary Economics, Elsevier, vol. 72(C), pages 21-41.
    6. Thomas F. Crossley & Hamish Low & Cormac O'Dea, 2013. "Household Consumption through Recent Recessions," Fiscal Studies, Institute for Fiscal Studies, vol. 34(2), pages 203-229, June.
    7. Deaton, Angus, 1991. "Saving and Liquidity Constraints," Econometrica, Econometric Society, vol. 59(5), pages 1221-1248, September.
    8. Renata Bottazzi & Serena Trucchi & Matthew Wakefield, 2020. "Consumption Responses to a Large Shock to Financial Wealth: Evidence from Italy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(2), pages 762-789, April.
    9. David Benson & Mariacristina De Nardi & Eric French, 2012. "Consumption and the Great Recession," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 36(Q I), pages 1-16.
    10. Orazio P. Attanasio & Guglielmo Weber, 1993. "Consumption Growth, the Interest Rate and Aggregation," Review of Economic Studies, Oxford University Press, vol. 60(3), pages 631-649.
    11. Atif Mian & Kamalesh Rao & Amir Sufi, 2013. "Household Balance Sheets, Consumption, and the Economic Slump," The Quarterly Journal of Economics, Oxford University Press, vol. 128(4), pages 1687-1726.
    12. Paiella, Monica, 2007. "Does wealth affect consumption? Evidence for Italy," Journal of Macroeconomics, Elsevier, vol. 29(1), pages 189-205, March.
    13. Concetta Rondinelli, 2014. "On the Structure of Italian Households: Consumption Patterns During the Recent Crises," Politica economica, Società editrice il Mulino, issue 2-3, pages 235-260.
    14. Christopher D. Carroll, 1997. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 1-55.
    15. Monica Paiella, 2009. "The Stock Market, Housing And Consumer Spending: A Survey Of The Evidence On Wealth Effects," Journal of Economic Surveys, Wiley Blackwell, vol. 23(5), pages 947-973, December.
    16. Richard Disney & John Gathergood & Andrew Henley, 2010. "House Price Shocks, Negative Equity, and Household Consumption in the United Kingdom," Journal of the European Economic Association, MIT Press, vol. 8(6), pages 1179-1207, December.
    17. James Banks & Rowena Crawford & Thomas Crossley & Carl Emmerson, 2012. "The effect of the financial crisis on older households in England," IFS Working Papers W12/09, Institute for Fiscal Studies.
    18. Greg Kaplan & Giovanni L. Violante, 2014. "A Model of the Consumption Response to Fiscal Stimulus Payments," Econometrica, Econometric Society, vol. 82(4), pages 1199-1239, July.
    19. Attanasio, Orazio P & Weber, Guglielmo, 1994. "The UK Consumption Boom of the Late 1980s: Aggregate Implications of Microeconomic Evidence," Economic Journal, Royal Economic Society, vol. 104(427), pages 1269-1302, November.
    20. Christopher Carroll & Jiri Slacalek & Kiichi Tokuoka & Matthew N. White, 2017. "The distribution of wealth and the marginal propensity to consume," Quantitative Economics, Econometric Society, vol. 8(3), pages 977-1020, November.
    21. Orazio P. Attanasio & Laura Blow & Robert Hamilton & Andrew Leicester, 2009. "Booms and Busts: Consumption, House Prices and Expectations," Economica, London School of Economics and Political Science, vol. 76(301), pages 20-50, February.
    22. R. Calcagno & E. Fornero & M. Rossi, 2009. "The Effect of House Prices on Household Consumption in Italy," The Journal of Real Estate Finance and Economics, Springer, vol. 39(3), pages 284-300, October.
    23. Crawford, Rowena, 2013. "The effect of the financial crisis on the retirement plans of older workers in England," Economics Letters, Elsevier, vol. 121(2), pages 156-159.
    24. Martin Browning & Thomas F. Crossley, 2009. "Shocks, Stocks, and Socks: Smoothing Consumption Over a Temporary Income Loss," Journal of the European Economic Association, MIT Press, vol. 7(6), pages 1169-1192, December.
    25. Alessandro Bucciol, 2012. "Measuring the Income Process in Italy," Rivista di Politica Economica, SIPI Spa, issue 1, pages 175-196, January-M.
    26. James M. Poterba, 2000. "Stock Market Wealth and Consumption," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 99-118, Spring.
    27. Lisa Rodano & Concetta Rondinelli, 2014. "The Italian Household Consumption: A Comparison Among Recessions," Politica economica, Società editrice il Mulino, issue 2-3, pages 203-234.
    28. Martin Browning & Thomas F. Crossley, 2000. "Luxuries Are Easier to Postpone: A Proof," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 1022-1026, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Renata Bottazzi & Serena Trucchi & Matthew Wakefield, 2017. "Labour supply responses to financial wealth shocks: evidence from Italy," IFS Working Papers W17/29, Institute for Fiscal Studies.
    2. Renata Bottazzi & Serena Trucchi & Matthew Wakefield, 2020. "Consumption Responses to a Large Shock to Financial Wealth: Evidence from Italy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(2), pages 762-789, April.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:scandj:v:122:y:2020:i:2:p:762-789. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley Content Delivery). General contact details of provider: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1467-9442 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.