The pass-through of uncertainty shocks to households

Marco Di Maggio, Amir Kermani, Rodney Ramcharan, Vincent Yao and Edison Yu

Journal of Financial Economics, 2022, vol. 145, issue 1, 85-104

Abstract: Using new employer-employee matched data, this paper investigates the impact of uncertainty, as measured by idiosyncratic stock market volatility, on individual outcomes. We find that firms provide at best partial insurance to their workers. Increased firm-level uncertainty reduces total compensation, especially variable pay, and workers reduce their durable goods consumption in response. Such shocks also lead to greater financial fragility among lower-income earners. Constructing a new county-level uncertainty shock, we find that local uncertainty shocks reduce county-level durable consumption. Taken together, these findings show that uncertainty shocks can significantly affect local economic activity through households’ consumption and savings decisions.

Keywords: Employment risk; Consumption; Insurance (search for similar items in EconPapers)
JEL-codes: D14 D80 E52 G21 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: The Pass-Through of Uncertainty Shocks to Households (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:145:y:2022:i:1:p:85-104

DOI: 10.1016/j.jfineco.2022.03.005

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