Wealth Shocks, Unemployment Shocks and Consumption in the Wake of the Great Recession

Dimitris Christelis, Dimitris Georgarakos and Tullio Jappelli ()

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

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 don’t. 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: Marginal Propensity to Consume; Wealth Shocks; Unemployment (search for similar items in EconPapers)
JEL-codes: D91 E21 (search for similar items in EconPapers)
Date: 2011-03-24, Revised 2014-11-19
New Economics Papers: this item is included in nep-lab, nep-mac and nep-ure
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Citations: View citations in EconPapers (9)

Published in Journal of Monetary Economics, vol. 72, 21-41, May 2015

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Related works:
Journal Article: Wealth shocks, unemployment shocks and consumption in the wake of the Great Recession (2015)
Working Paper: Wealth shocks, unemployment shocks and consumption in the wake of the Great Recession (2015)
Working Paper: Wealth Shocks, Unemployment Shocks and Consumption in the Wake of the Great Recession (2014)
Working Paper: Wealth shocks, unemployment shocks and consumption in the wake of the Great Recession (2014)
Working Paper: Wealth shocks, unemployment shocks and consumption in the wake of the Great Recession (2011)
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