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The Response of Consumption in Russian Households to Economic Shocks

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  • Steven Stillman

Abstract

This paper examines the extent to which consumption in Russian households responds to exogenous income shocks. During the time period studied in this paper (1994 - 1998), Russia experienced two major economic crises. Both featured extreme movements in the real ruble-dollar exchange rate. The price of oil, which is typically thought to have a strong effect on the Russian economy, was also quite volatile during this time period. This paper exploits these large changes in oil prices and exchange rates, as well as community-level variations in wage and pension arrears, to identify exogenous shocks to household income. Using representative panel data on urban households from the Russian Longitudinal Monitoring Survey, I find that a household which experiences an exogenous shock of 10% of its total income changes both its food and total non-durable expenditure by 7-11%. Most evidence indicates that these shocks are transitory in nature and thus the traditional Life Cycle/Permanent Income Hypothesis model is firmly rejected as describing the behavior of Russian households. Additional results indicate that changes in household savings are negatively related to exogenous income shocks, with this relationship strongest for low wealth households. Only models of consumption which include precautionary savings motives can explain why poorer households both reduce their consumption and increase their savings in response to an exogenous decline in income.

Suggested Citation

  • Steven Stillman, 2001. "The Response of Consumption in Russian Households to Economic Shocks," William Davidson Institute Working Papers Series 412, William Davidson Institute at the University of Michigan.
    • Handle: RePEc:wdi:papers:2001-412
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    References listed on IDEAS

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    Cited by:

    1. Burggraf, Christine, 2017. "Russian demand for dietary quality: Nutrition transition, diet quality measurement, and health investment theory," Studies on the Agricultural and Food Sector in Transition Economies, Leibniz Institute of Agricultural Development in Transition Economies (IAMO), volume 86, number 86, September.
    2. Gimpelson, V. & Chernina, E., 2020. "How we perceive our place in income distribution and how the perceptions deviate from reality," Journal of the New Economic Association, New Economic Association, vol. 46(2), pages 30-56.
    3. Kuhn, Randall & Stillman, Steven, 2004. "Understanding Interhousehold Transfers in a Transition Economy: Evidence from Russia," Economic Development and Cultural Change, University of Chicago Press, vol. 53(1), pages 131-156, October.
    4. Maksim Yemelyanau, 2009. "Second agriculture in Belarus and Ukraine:subsistence or leisure?," BEROC Working Paper Series 08, Belarusian Economic Research and Outreach Center (BEROC).
    5. Dang,Hai-Anh H. & Lokshin,Michael M. & Abanokova,Ksenia & Bussolo,Maurizio, 2018. "Inequality and Welfare Dynamics in the Russian Federation during 1994-2015," Policy Research Working Paper Series 8629, The World Bank.
    6. Steven Stillman & Duncan Thomas, 2008. "Nutritional Status During an Economic Crisis: Evidence from Russia," Economic Journal, Royal Economic Society, vol. 118(531), pages 1385-1417, August.
    7. repec:zbw:iamost:269539 is not listed on IDEAS
    8. von Hinke, Stephanie & Leckie, George, 2017. "Protecting energy intakes against income shocks," Journal of Economic Behavior & Organization, Elsevier, vol. 141(C), pages 210-232.
    9. Irac, D. & Minoiu, C., 2006. "Risk Insurance in a Transition Economy: Evidence from Rural Romania," Working papers 154, Banque de France.
    10. Radaev, Vadim V. (Радаев, Вадим) & Kotelnikova, Zoya V. (Котельникова, Зоя), 2016. "Changes in Alcohol Consumption and Governmental Alcohol Policy in Russia [Изменение Структуры Потребления Алкоголя В Контексте Государственной Алкогольной Политики В России]," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 5, pages 92-117, October.
    11. Burggraf, Christine, 2017. "Russian demand for dietary quality: Nutrition transition, diet quality measurement, and health investment theory," Studies on the Agricultural and Food Sector in Transition Economies 269539, Institute of Agricultural Development in Transition Economies (IAMO).
    12. Yuriy Gorodnichenko & Klara Sabirianova Peter & Dmitriy Stolyarov, 2010. "Inequality and Volatility Moderation in Russia: Evidence from Micro-Level Panel Data on Consumption and Income," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(1), pages 209-237, January.
    13. Stephanie von Hinke & George Leckie, 2017. "Protecting Calorie Intakes against Income Shocks," Bristol Economics Discussion Papers 17/684, School of Economics, University of Bristol, UK.
    14. Delphine M. Irac & Camelia Minoiu, 2007. "Risk insurance in a transition economy," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 15(1), pages 153-173, January.
    15. Mu, Ren, 2006. "Income Shocks, Consumption, Wealth, and Human Capital: Evidence from Russia," Economic Development and Cultural Change, University of Chicago Press, vol. 54(4), pages 857-892, July.
    16. Mark C. Foley & William Pyle, 2005. "Household Savings in Russia during the Transition," Middlebury College Working Paper Series 0522, Middlebury College, Department of Economics.
    17. Nurul Syifaa Mohd Shakil & Nur Azirah Zahida Mohamad Azhar & Norashida Othman & Ahmad Zuhairi Zainuddin & Lucky Rachmawati & Tony Seno Aji & Hendry Cahyono, 2023. "Nexus between Government Assistance and Savings: Preliminary Analysis of Households in Malaysia," Information Management and Business Review, AMH International, vol. 15(3), pages 462-469.
    18. Spryskov Dmitry, 2003. "Below the Poverty Line: Duration of Poverty in Russia," EERC Working Paper Series 03-04e, EERC Research Network, Russia and CIS.
    19. Irina Denisova, 2007. "Entry to and Exit from Poverty in Russia: Evidence from Longitudinal Data," Working Papers w0098, New Economic School (NES).
    20. repec:bla:etrans:v:11:y:2003-03:i:1:p:67-91 is not listed on IDEAS
    21. Stillman, Steven & Thomas, Duncan, 2004. "The Effect of Economic Crises on Nutritional Status: Evidence from Russia," IZA Discussion Papers 1092, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    consumption; savings; consumption smoothing; precautionary savings; economic shocks; Russia;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • 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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