The persistence of The persistence of macroeconomic shock macroeconomic shock effects on Russian effects on Russian household consumptionhousehold consumption

Yana Yushkina

Why is this interesting?Why is this interesting?

Source: BEA

Theory: intertemporal Theory: intertemporal optimization problemoptimization problemmax Et[ ∑T

i=t βi-t u(Ci) ]

s.t. Wt+1= R(Xt-Ct )

◦ Wt is the stock of wealth at the beginning period t

◦ Xt = Wt + Yt 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?

Literature on consumption Literature on consumption smoothingsmoothingEmpirical estimationInstrumenting for permanent

income Response of C to predictable

changes in IResponse of C to exogenous

shocks◦Stillman (2003)

DataDataRussia Longitudinal Monitoring

Survey (RLMS) Contains information about

household- level expenditures, income, and demographic characteristics

ModelModellnExpenditureht(food, non-food, or durables) =

θ1..(n-1) (lags of lnExpenditureht(food, non-

food, or durables)) + γ1lnIncomeht + γ2…

n(lags of lnIncome) + α1 (Shock Dummy) + α2(Shock Dummy)*lnIncome + β(household characteristics)ht + εht

IssuesIssuesNo data after 2007