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Consumption responses to a large shock to financial wealth: evidence from Italy

Bottazzi, Renata, Trucchi, Serena and Wakefield, Matthew 2020. Consumption responses to a large shock to financial wealth: evidence from Italy. Scandinavian Journal of Economics 122 (2) , pp. 762-789. 10.1111/sjoe.12339
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Abstract

We estimate marginal propensities to consume from wealth shocks. We exploit large asset-priceshocks in 2007–2008 and household-level panel data to implement instrumental variables. A fallof one euro in risky financial wealth resulted in cuts to annual total (non-durable) consumption of8.5–9 (5.5–5.7) cents, with small effects on food spending. Effects seem stronger for lower-wealthor indebted households, but significant responses from wealthier households and those withoutmortgages are important for our baseline results. Counterfactuals indicate financial-wealth effectswere relatively important for consumption falls in Italy in 2007–2008. The estimated effects areconsistent with a simulated life-cycle model capturing the wealth shock.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Publisher: Wiley
ISSN: 0347-0520
Date of First Compliant Deposit: 9 April 2020
Last Modified: 10 Apr 2020 01:51
URI: http://orca.cf.ac.uk/id/eprint/129730

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