Working Paper: CEPR ID: DP15525
Authors: Dimitris Christelis; Dimitris Georgarakos; Tullio Jappelli; Geoff Kenny
Abstract: Using new panel data from a representative survey of households in the six largest euro area economies, the paper estimates the impact of the Covid-19 crisis on consumption. The panel provides, each month, household-specific indicators of the concern about finances due to Covid-19 from the first peak of the pandemic until October 2020. The results show that this concern causes a significant reduction in non-durable consumption. The paper also explores the potential impact on consumption of government interventions and of another wave of Covid-19, using household-level consumption adjustments to scenarios that involve positive and negative income shocks. Fears of the financial consequences of the pandemic induce a significant reduction in the marginal propensity to consume, an effect consistent with models of precautionary saving and liquidity constraints. The results are robust to endogeneity concerns through use of panel fixed effects and partial identification methods, which account also for time-varying unobservable variables, and provide informative identification regions of the average treatment effect of the concern for Covid-19 under weak assumptions.
Keywords: consumption; income shocks; marginal propensity to consume; financial concerns; fiscal policies
JEL Codes: D12; D81; E21; G51; H31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial concerns due to COVID-19 (G51) | Reduction in nondurable consumption (D12) |
| Financial concerns (G51) | Precautionary saving behavior (D14) |
| Precautionary saving behavior (D14) | Reduction in nondurable consumption (D12) |
| Financial concerns (G51) | Amplification of negative consumption response to negative income shocks (D12) |
| Financial concerns (G51) | Attenuation of positive consumption response to positive income shocks (E21) |