6 research outputs found
Buffer-stock savings and households' wealth response to income shocks
We structurally estimate a buffer-stock savings model using panel data from the Italian Survey of Household Income and Wealth that contains information not only about income and consumption but also wealth. We exploit the information about wealth and the responses of wealth and consumption to income shocks over different time horizons to infer the degree of insurance against permanent and transitory income shocks. The estimated model implies that Italian households can insure 5-10% of a permanent shock and 90-95% of a transitory shock. The degree of insurance against permanent shocks is at the low end of the range of existing estimates for the U.S
Essays on households' consumption and saving decisions.
PhDIn this thesis I contribute to the applied study of households' consumption and saving behaviour. In the first chapter I introduce and explain
why it is relevant to understand how households react to income shocks in
terms of their consumption and saving decisions.
The second chapter is inspired by a recent paper by Krueger and Perri
(2011), who argue that the observed response of household wealth to income
shocks, which is smaller over long periods, provides evidence in favour of the
classic permanent-income model with perfect financial markets. Whether a
model with financial market imperfections, however, such as the standard
incomplete-markets model with liquidity constraints, can also generate such
a wealth response crucially depends on the importance of precautionary
wealth accumulation. I structurally estimate a model with a precautionary-
savings motive and show that it can generate the observed wealth responses
in the data. I further show that the wealth responses to income shocks do
not allow us to rule out financial market imperfections.
In the third chapter I extend the analysis, studying empirically what
can be learned from international evidence on the way in which households
react to income. I use detailed panel data from newly available surveys of
Chile, Spain and the United States. Although it compares three different
countries with dissimilar levels of development in their financial markets,
the evidence suggests that the amount of precautionary savings in these
economies is low and that household behaviour is not strongly influenced
by the presence of borrowing constraints. The structural estimation for all
countries suggests a low target level of wealth resulting from high levels of
impatience or low levels of risk aversion.
In the fourth chapter I extend the analysis to the real estate properties owned by the households. I revisit the Italian data, building on
Kaplan and Violante (2014) who have argued that a substantial fraction
of wealthy households with illiquid wealth, such as real estate, behave as
hand-to-mouth consumers. In exploring the data, I find that, in the Italian
sample, households which adjust their illiquid wealth show responses to income shocks like permanent-income consumers. Instead households which
do not adjust their illiquid wealth, and whose behaviour in general can
thus not be characterised by the first order conditions, show responses to
income shocks which suggest a stronger precautionary-saving motive, such
as wealthy hand-to-mouth consumers might be expected to show.
The fifth chapter provides the conclusions of the thesis.Queen Mary University of London School of Economics and Financ
Buffer-stock saving and households' response to income shocks
We use the Italian Survey of Household Income and Wealth, a rather unique dataset with a long time dimension of panel information on consumption, income and wealth, to structurally estimate a buffer-stock saving model. We exploit the information contained in the joint dynamics of income, consumption and wealth to quantify the degree of insurance against income risk. The estimated model implies that Italian households can insure between 89 and 95 percent of a transitory and between 7 and 9 percent of a permanent income shock. Compared to existing empirical estimates for the same dataset, our findings suggest that Italian households do not have access to significant insurance beyond self-insurance
Tell me something I don't already know: Learning in low- and high-inflation settings
Using randomized control trials (RCT) applied over time in different countries, we study how the economic environment affects how agents learn from new information. We show that as inflation has risen in developed economies, both households and firms have become more attentive and informed about inflation, leading them to respond less to exogenously provided information about inflation and monetary policy. This observation holds for both firms and households. We also study the effects of RCTs in countries where inflation has been consistently high (Uruguay) and low (New Zealand) as well as what happens when the same agents are repeatedly provided information in both low- and high-inflation environments (Italy). Our results broadly support models in which inattention is an endogenous outcome that depends on the economic environment
Tell Me Something I Don't Already Know: Learning in Low and High-Inflation Settings
Using randomized control trials (RCTs) applied over time in different countries, we study how the economic environment affects how agents learn from new information. We show that as inflation has recently risen in advanced economies, both households and firms have become more attentive and informed about inflation, leading them to respond less to exogenously provided information about inflation and monetary policy. We also study the effects of RCTs in countries where inflation has been consistently high (Uruguay) and low (New Zealand) as well as what happens when the same agents are repeatedly provided information in both low- and high-inflation environments (Italy). Our results broadly support models in which inattention is an endogenous outcome that depends on the economic environment
Tell me something I don't already know: Learning in low and high-inflation settings
Using randomized control trials (RCTs) applied over time in different countries, we study whether the economic environment affects how agents learn from new information. We show that as inflation rose in advanced economies, both households and firms became more attentive and informed about publicly available news about inflation, leading them to respond less to exogenously provided information about inflation and monetary policy. We also study the effects of RCTs in countries where inflation has been consistently high (Uruguay) and low (New Zealand) as well as what happens when the same agents are repeatedly provided information in both low-and high-inflation environments (Italy). Our results broadly support models in which inattention is an endogenous outcome that depends on the economic environment