Location of Repository

The Response of Consumption in Russian Households to Economic Shocks

By Steven Stillman

Abstract

This paper examines the extent to which consumption in Russian households responds to exogenous income shocks. During the time period studied in this paper (1994 - 1998), Russia experienced two major economic crises. Both featured extreme movements in the real ruble-dollar exchange rate. The price of oil, which is typically thought to have a strong effect on the Russian economy, was also quite volatile during this time period. This paper exploits these large changes in oil prices and exchange rates, as well as community-level variations in wage and pension arrears, to identify exogenous shocks to household income. Using representative panel data on urban households from the Russian Longitudinal Monitoring Survey, I find that a household which experiences an exogenous shock of 10% of its total income changes both its food and total non-durable expenditure by 7-11%. Most evidence indicates that these shocks are transitory in nature and thus the traditional Life Cycle/Permanent Income Hypothesis model is firmly rejected as describing the behavior of Russian households. Additional results indicate that changes in household savings are negatively related to exogenous income shocks, with this relationship strongest for low wealth households. Only models of consumption which include precautionary savings motives can explain why poorer households both reduce their consumption and increase their savings in response to an exogenous decline in income

Topics: Consumption, Savings, Consumption Smoothing, Precautionary Savings, Economic Shocks, Russia
Year: 2001
OAI identifier: oai:deepblue.lib.umich.edu:2027.42/39796

Suggested articles

Preview

Citations

  1. (2001). A Theory of the Consumption Function, With and Without Liquidity Constraints (Expanded Version).” doi
  2. (1996). Bargaining and Distribution in
  3. (1997). Buffer-Stock Savings and the Life Cycle / Permanent Income Hypothesis.” doi
  4. (1993). Consumption and Income Seasonality in Thailand.”
  5. (2001). Consumption Smoothing doi
  6. (1994). Do the Poor Insure?
  7. (1980). Economics and Consumer Behavior. Cambridge:
  8. (2000). Government Cash Transfers, Household Consumption, and Poverty Alleviation
  9. (1999). Grime and Punishment: Job Insecurity and Wage Arrears in the Russian Federation.”
  10. (1982). Institute Working Paper 412
  11. (1997). Russia Longitudinal Monitoring Survey Sample Attrition, Replenishment, and Weighting: Rounds V-VII.”
  12. (1997). The Analysis of Household Surveys.
  13. (2001). The Life Cycle Model of Consumption and doi
  14. (1980). The Measurement of Permanent Income and Its Application to Savings Behavior.” doi
  15. (2001). The Response of Expenditures to Anticipated Income Changes: doi
  16. (1999). The Response of Household Consumption to Income Tax Refunds.” doi
  17. (1999). The Response of Household Consumption to Predictable Changes in
  18. (1992). Using Weather Variability to Estimate the Response of Savings to Transitory Income in

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.