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

Bottazzi, Renata and Trucchi, Serena and Wakefield, Matthew (2017) Consumption responses to a large shock to financial wealth: evidence from Italy. Working Paper. University of Essex, Department of Economics, Economics Discussion Papers, Colchester.

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Abstract

We estimate marginal propensities to consume from wealth shocks for Italian households early in the Great Recession. Large asset-price shocks in 2007-2008 underpin instrumental variables. A euro fall in risky financial wealth resulted in cuts in annual total (non-durable) consumption of 8.5-9 (5.5-5.7) cents. We find small effects on food spending. Counterfactuals indicate financial-wealth effects were relatively important for consumption falls in Italy in 2007/08. The estimated effects are consistent with a simulated lifecycle model that captures the wealth shock. Also consistent with the model are findings of stronger wealth effects for agents who were pessimistic about stock returns.

Item Type: Monograph (Working Paper)
Uncontrolled Keywords: Wealth effects; household consumption; the Great Recession
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Jim Jamieson
Date Deposited: 07 Aug 2017 10:58
Last Modified: 07 Aug 2017 10:58
URI: http://repository.essex.ac.uk/id/eprint/20188

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