Consumption responses to a large shock to financial wealth: evidence from Italy
Serena Trucchi and
Economics Discussion Papers from University of Essex, Department of Economics
We estimate marginal propensities to consume from wealth shocks for Italian households early in the Great Recession. Large asset-price shocks in 2007-2008 underpin instrumental variables. A euro fall in risky financial wealth resulted in cuts in annual total (non-durable) consumption of 8.5-9 (5.5-5.7) cents. We find small effects on food spending. Counterfactuals indicate financial-wealth effects were relatively important for consumption falls in Italy in 2007/08. The estimated effects are consistent with a simulated lifecycle model that captures the wealth shock. Also consistent with the model are findings of stronger wealth effects for agents who were pessimistic about stock returns.
Keywords: Wealth effects; household consumption; the Great Recession (search for similar items in EconPapers)
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