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Consumption Responses to a Large Shock to Financial Wealth: Evidence from Italy

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  • Renata Bottazzi
  • Serena Trucchi
  • Matthew Wakefield

Abstract

We estimate marginal propensities to consume from wealth shocks. We exploit large asset‐price shocks in 2007–2008 and household‐level panel data to implement instrumental variables. A fall of one euro in risky financial wealth resulted in cuts to annual total (non‐durable) consumption of 8.5–9 (5.5–5.7) cents, with small effects on food spending. Effects seem stronger for lower‐wealth or indebted households, but significant responses from wealthier households and those without mortgages are important for our baseline results. Counterfactuals indicate financial‐wealth effects were relatively important for consumption falls in Italy in 2007–2008. The estimated effects are consistent with a simulated life‐cycle model capturing the wealth shock.

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  • Renata Bottazzi & Serena Trucchi & Matthew Wakefield, 2020. "Consumption Responses to a Large Shock to Financial Wealth: Evidence from Italy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(2), pages 762-789, April.
  • Handle: RePEc:bla:scandj:v:122:y:2020:i:2:p:762-789
    DOI: 10.1111/sjoe.12339
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    Cited by:

    1. Kovacs, Agnes & Rondinelli, Concetta & Trucchi, Serena, 2021. "Permanent versus transitory income shocks over the business cycle," European Economic Review, Elsevier, vol. 139(C).
    2. Renata Bottazzi & Serena Trucchi & Matthew Wakefield, 2021. "Labour supply responses to financial wealth shocks: evidence from Italy," Fiscal Studies, John Wiley & Sons, vol. 42(2), pages 291-317, June.
    3. Renata Bottazzi & Serena Trucchi & Matthew Wakefield, 2020. "Consumption Responses to a Large Shock to Financial Wealth: Evidence from Italy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(2), pages 762-789, April.
    4. Yanqin Zhang & Xueli Zhang & Manzhi Liu, 2023. "A Study on the Factors Influencing Household Consumption from a Money Demand Perspective: Evidence from Chinese Urban Residents," Sustainability, MDPI, vol. 16(1), pages 1-18, December.

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