Wealth shocks,unemployment shocks and consumption in the wake of the Great Recession |
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| Institution: | 1. University of Naples Federico II and Center for Studies in Economics and Finance (CSEF), Naples, Italy;2. Center for Financial Studies (CFS), Frankfurt, Germany;3. Centre of Excellence in Population Ageing Research (CEPAR), Sydney, Australia;4. Goethe University Frankfurt, Germany;5. University of Leicester, United Kingdom;6. University of Naples Federico II and Center for Studies in Economics and Finance (CSEF), Naples, Italy;1. École Polytechnique Fédérale de Lausanne, Switzerland;2. International Monetary Fund, 700 19th Street, N.W., Washington, D.C. 20431, United States;1. INCAE, Costa Rica;2. UW–Madison, USA;3. Federal Reserve Bank of Minneapolis, USA;4. Federal Reserve Bank of Chicago, USA;1. Department of Economics, New York University, 19 W 4th Street, New York, NY 10012, United States;2. Research Department, Federal Reserve Bank of Richmond, United States;3. Research Department, Federal Reserve Bank of New York, United States;1. Southern Methodist University, United States;2. University of Miami, United States;3. University of Oslo, Norway;4. École Polytechnique Fédérale de Lausanne, Switzerland;1. Economics Discipline Group, University of Technology Sydney, PO Box 123, Broadway NSW 2007, Australia;2. Funds Management and Banking Department, the Bank of Canada, 234 Wellington Street, Ottawa, Ontario, K1G 0G9, Canada |
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| Abstract: | Data from the 2009 Internet Survey of the Health and Retirement Study show that many US households experienced large capital losses in housing and financial wealth, and that 5% of respondents lost their job during the Great Recession. For every loss of 10% in housing and financial wealth, the estimated drop in household expenditure was about 0.56% and 0.9%, respectively. Those who became unemployed reduced spending by 10%. In line with predictions of standard inter-temporal choice models, households who perceived the stock market shock to be permanent adjusted spending much more than those who perceived the shock to be temporary. |
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| Keywords: | Wealth shocks Unemployment Consumption Great Recession |
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