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The Pass-Through of Uncertainty Shocks to Households

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Listed:
  • Marco Di Maggio
  • Amir Kermani
  • Rodney Ramcharan
  • Vincent Yao
  • Edison Yu

Abstract

Using new employer-employee matched data, this paper investigates the impact of uncertainty, as measured by idiosyncratic stock market volatility, on individual outcomes. We find that firms provide at best partial insurance to their workers. An increase in firm-level uncertainty is associated with a decline in total compensation, especially in variable pay. In turn, individuals reduce their durable goods consumption in response to these uncertainty shocks. These shocks also lead to greater financial fragility among lower-income earners. We also construct a new county-level uncertainty shock and find that local uncertainty shocks reduce county level durable consumption.

Suggested Citation

  • Marco Di Maggio & Amir Kermani & Rodney Ramcharan & Vincent Yao & Edison Yu, 2020. "The Pass-Through of Uncertainty Shocks to Households," NBER Working Papers 27646, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:27646
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    Cited by:

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    2. Song, Jeongseop & Zhang, Fan, 2024. "Regional market uncertainty and corporate investment," The North American Journal of Economics and Finance, Elsevier, vol. 69(PB).
    3. repec:zbw:bofrdp:2022_005 is not listed on IDEAS
    4. Alan D. Crane & Andrew Koch & Leming Lin, 2024. "Real Effects of Markets on Politics: Evidence from US Presidential Elections," American Economic Review: Insights, American Economic Association, vol. 6(1), pages 73-88, March.
    5. Filipe Correia & Gustavo S. Cortes & Thiago C. Silva, 2021. "Is Corporate Credit Risk Propagated to Employees?," Working Papers Series 551, Central Bank of Brazil, Research Department.
    6. Ambrocio, Gene, 2020. "Inflationary household uncertainty shocks," Research Discussion Papers 5/2020, Bank of Finland.
    7. Huang, Bin & Wang, Bin & Chen, Zixuan, 2024. "Individual investment adaptations to COVID-19 lockdowns," The North American Journal of Economics and Finance, Elsevier, vol. 70(C).
    8. Wu, Weixing & Zhao, Jing, 2022. "Economic policy uncertainty and household consumption: Evidence from Chinese households," Journal of Asian Economics, Elsevier, vol. 79(C).
    9. Ambrocio, Gene, 2020. "Inflationary household uncertainty shocks," Bank of Finland Research Discussion Papers 5/2020, Bank of Finland.

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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G5 - Financial Economics - - Household Finance
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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