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

Bottazzi, Renata, Trucchi, Serena ORCID: https://orcid.org/0000-0002-1932-7201 and Wakefield, Matthew 2020. Consumption responses to a large shock to financial wealth: evidence from Italy. Scandinavian Journal of Economics 122 (2) 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:	06 Nov 2023 16:45
URI:	https://orca.cardiff.ac.uk/id/eprint/129730

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