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Wealth shocks, unemployment shocks and consumption in the wake of the Great Recession

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  • Georgarakos, Dimitris
  • Christelis, Dimitris
  • Jappelli, Tullio

Abstract

Data from the 2009 Internet Survey of the Health and Retirement Study show that many U.S. households experienced large capital losses in housing and financial wealth, and that 5% of respondents lost their job during the Great Recession. As a consequence of these shocks, many households reduced substantially their expenditures. For every 10% loss in housing and financial wealth, the estimated drop in household expenditure is about 0.56% and 0.9%, respectively. In addition, those who became unemployed reduced spending by 10%. 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 JEL Classification: E21, D91

Suggested Citation

  • Georgarakos, Dimitris & Christelis, Dimitris & Jappelli, Tullio, 2015. "Wealth shocks, unemployment shocks and consumption in the wake of the Great Recession," Working Paper Series 1762, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20151762
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    Keywords

    consumption; Great Recession; unemployment; Wealth Shocks;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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