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The persistence of macroeconomic shock effects on Russian household consumption Yana Yushkina.

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Presentation on theme: "The persistence of macroeconomic shock effects on Russian household consumption Yana Yushkina."— Presentation transcript:

1 The persistence of macroeconomic shock effects on Russian household consumption Yana Yushkina

2 Why is this interesting? Source: BEA

3 Theory: intertemporal optimization problem max E t [ ∑ T i=t β i-t u(C i ) ] s.t. W t+1 = R(X t -C t ) ◦ W t is the stock of wealth at the beginning period t ◦ X t = W t + Y t is cash on hand (wealth + labor earnings) ◦ R = (1 +r) where r is the constant real interest rate ◦ β = 1/(1 + δ ) where δ is the homogenous discount rate Uncertainty?

4 Literature on consumption smoothing Empirical estimation Instrumenting for permanent income Response of C to predictable changes in I Response of C to exogenous shocks ◦ Stillman (2003)

5 Data Russia Longitudinal Monitoring Survey (RLMS) Contains information about household- level expenditures, income, and demographic characteristics

6 Model lnExpenditure ht(food, non-food, or durables) = θ 1..(n-1) (lags of lnExpenditure ht(food, non-food, or durables) ) + γ 1 lnIncome ht + γ 2…n (lags of lnIncome) + α 1 (Shock Dummy) + α 2 (Shock Dummy)*lnIncome + β (household characteristics) ht + ε ht

7 Issues No data after 2007


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