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Did Household Consumption Become More Volatile?

We show that volatility of household consumption, after accounting for predictable variation arising from movements in real interest rates, preferences and income shocks, increased between 1970 and 2002. For single parent households, and households headed by nonwhite or poorly educated individuals, this rise was significantly larger. This stands in sharp contrast with the dramatic fall in aggregate volatility of the US economy, and may have significant welfare implications. A spectacular fall in average covariances of consumption growth rates across households over this period accounts for the diverging paths of aggregate and household level volatilities.

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File URL: http://www.econ.ed.ac.uk/papers/id161_esedps.pdf
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Paper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 161.

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Length: 36
Date of creation: 11 Jan 2007
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Handle: RePEc:edn:esedps:161
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