The Pass-Through of Uncertainty Shocks to Households

49 Pages Posted: 18 Sep 2020 Last revised: 26 Feb 2022

See all articles by Marco Di Maggio

Marco Di Maggio

Harvard Business School; National Bureau of Economic Research (NBER)

Amir Kermani

University of California, Berkeley; National Bureau of Economic Research (NBER)

Rodney Ramcharan

University of Southern California, Marshall School of Business

Vincent Yao

Georgia State University - J. Mack Robinson College of Business

Edison G. Yu

Federal Reserve Bank of Philadelphia

Multiple version iconThere are 2 versions of this paper

Date Written: February 24, 2022

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

JEL Classification: D14, D80, E52, G21

Suggested Citation

Di Maggio, Marco and Kermani, Amir and Ramcharan, Rodney and Yao, Vincent and Yu, Edison G., The Pass-Through of Uncertainty Shocks to Households (February 24, 2022). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3659725 or http://dx.doi.org/10.2139/ssrn.3659725

Marco Di Maggio

Harvard Business School ( email )

Soldiers Field
Baker Library 265
Boston, MA 02163
United States

HOME PAGE: http://https://www.hbs.edu/faculty/Pages/profile.aspx?facId=697248

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
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Amir Kermani

University of California, Berkeley ( email )

2220 Piedmont Ave
Berkeley, CA 94720
United States

HOME PAGE: http://faculty.haas.berkeley.edu/amir/research/research.html

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
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Rodney Ramcharan

University of Southern California, Marshall School of Business ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

HOME PAGE: http://https://sites.google.com/site/rodneyramcharan/

Vincent Yao (Contact Author)

Georgia State University - J. Mack Robinson College of Business ( email )

P.O. Box 4050
Atlanta, GA 30303-3083
United States

Edison G. Yu

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

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