Permanent versus Transitory Income Shocks over the Business Cycle

Agnes Kovacs (), Concetta Rondinelli and Serena Trucchi
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Agnes Kovacs: Department of Economics, The University of Manchester; IFS

No 2018:23, Working Papers from Department of Economics, University of Venice "Ca' Foscari"

Abstract: This paper investigates the role of subjective income expectations in shaping consumption dynamics of European economies in the last decade. We make two main contributions. We first exploit the joint availability of income expectations and realizations in a unique micro panel-dataset to identify the levels of transitory and permanent income shocks at the individual level. We then evaluate whether these calculated income shocks can help to explain contractions in aggregate consumption over the two most recent crisis. We find strong evidence that consumption behavior during the 2012-2013 crisis can be explained by the observed income shocks, but the same is not true of the 2008-2009 crisis.

Keywords: Persistence of income shocks; income uncertainty; expectations; consumption; financial crisis (search for similar items in EconPapers)
JEL-codes: D12 E21 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2018
New Economics Papers: this item is included in nep-eec and nep-mac
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Related works:
Journal Article: Permanent versus transitory income shocks over the business cycle (2021)
Working Paper: Permanent versus transitory income shocks over the business cycle (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:ven:wpaper:2018:23

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