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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