Did Household Consumption Become More Volatile?

Olga Gorbachev ()

ESE Discussion Papers from Edinburgh School of Economics, University of Edinburgh

Abstract: 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 signi¯cantly 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.

Keywords: consumption risk; volatility decomposition; aggregate volatility; panel data. (search for similar items in EconPapers)
JEL-codes: D80 D91 E21 (search for similar items in EconPapers)
Date: 2007-07-31
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Persistent link: http://EconPapers.repec.org/RePEc:edn:esedps:161

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