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

Tullio Jappelli () and Dimitris Georgarakos
Authors registered in the RePEc Author Service: Dimitris Christelis

No 10196, CEPR Discussion Papers from Centre for Economic Policy Research

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 (search for similar items in EconPapers)
JEL-codes: D91 E21 (search for similar items in EconPapers)
Date: 2014-10
New Economics Papers: this item is included in nep-mac and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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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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