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

68 Pages Posted: 12 Mar 2015

See all articles by Dimitris Christelis

Dimitris Christelis

Centre for Studies in Economics and Finance (CSEF), University of Naples Federico II; Center for Financial Studies (CFS); ARC Centre of Excellence in Population Ageing Research (CEPAR); Netspar

Dimitris Georgarakos

European Central Bank (ECB) - Directorate General Research; Center for Financial Studies (CFS)

Tullio Jappelli

University of Naples Federico II - Department of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Center for Studies in Economics and Finance - CSEF

Multiple version iconThere are 6 versions of this paper

Date Written: March 11, 2015

Abstract

Data from the 2009 Internet Survey of the Health and Retirement Study show that many U.S. households experienced large capital losses in housing and financial wealth, and that 5% of respondents lost their job during the Great Recession. As a consequence of these shocks, many households reduced substantially their expenditures. For every 10% loss in housing and financial wealth, the estimated drop in household expenditure is about 0.56% and 0.9%, respectively. In addition, those who became unemployed reduced spending by 10%. 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: wealth shocks, unemployment, consumption, great recession

JEL Classification: E21, D91

Suggested Citation

Christelis, Dimitris and Georgarakos, Dimitris and Jappelli, Tullio, Wealth Shocks, Unemployment Shocks and Consumption in the Wake of the Great Recession (March 11, 2015). ECB Working Paper No. 1762. Available at SSRN: https://ssrn.com/abstract=2576666

Dimitris Christelis (Contact Author)

Centre for Studies in Economics and Finance (CSEF), University of Naples Federico II ( email )

Via Cintia, Monte S. Angelo
Naples, NA 80126
Italy

Center for Financial Studies (CFS) ( email )

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Germany

ARC Centre of Excellence in Population Ageing Research (CEPAR) ( email )

Australian School of Business
Ground Floor, East Wing UNSW Kensington Campus
Sydney, New South Wales NSW 2052
Australia
+61 (2) 9931 9202 (Phone)

HOME PAGE: http://www.cepar.edu.au

Netspar ( email )

P.O. Box 90153
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Dimitris Georgarakos

European Central Bank (ECB) - Directorate General Research ( email )

Sonnemannstrasse 20
Frankfurt am Main, 60314
Germany

Center for Financial Studies (CFS) ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Tullio Jappelli

University of Naples Federico II - Department of Economics ( email )

Via Cintia - Monte S. Angelo
Napoli, 80126
Italy

HOME PAGE: http://www.csef.it/people/jappelli.htm

Centre for Economic Policy Research (CEPR)

London
United Kingdom

HOME PAGE: http://www.cepr.org/researchers/details/rschcontact.asp?IDENT=106354

European Corporate Governance Institute (ECGI)

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B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Center for Studies in Economics and Finance - CSEF

84084 Fisciano, Salerno
Italy
+39 089 963 165 (Phone)
+39 089 963 169 (Fax)

HOME PAGE: http://www.csef.it/people/jappelli.htm

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