The persistence of macroeconomic shock effects on Russian household consumption

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