Working Paper: CEPR ID: DP10196
Authors: Dimitris Christelis; Dimitris Georgarakos; Tullio Jappelli
Abstract: We use data from the 2009 Internet Survey of the Health and Retirement Study to examine the consumption impact of wealth shocks and unemployment during the Great Recession in the US. We find that many households experienced large capital losses in housing and in their financial portfolios, and that a non-trivial fraction of respondents have lost their job. As a consequence of these shocks, many households reduced substantially their expenditures. We estimate that the marginal propensities to consume with respect to housing and financial wealth are 1 and 3.3 percentage points, respectively. In addition, those who became unemployed reduced spending by 10 percent. 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?s time, and those who do not. In line with the predictions of standard models of intertemporal choice, we find that the latter group adjusted much more than the former its spending in response to financial wealth shocks.
Keywords: consumption; great recession; unemployment; wealth shocks
JEL Codes: D91; E21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| capital losses on housing and financial assets (G59) | reduced household consumption (D10) |
| unemployment (J64) | reduced household consumption (D10) |
| perceived permanent wealth shocks (E21) | more substantial reductions in consumption (E21) |
| perceived transitory wealth shocks (G59) | less substantial reductions in consumption (D12) |
| financial wealth losses (G51) | reduced household consumption (D10) |
| housing wealth losses (G51) | reduced household consumption (D10) |
| capital losses (G32) | reduced expenditures (H59) |