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The persistence of macroeconomic shock effects on Russian household consumption

The persistence of macroeconomic shock effects on Russian household consumption. Yana Yushkina. Why is this interesting?. Source: BEA. Theory: intertemporal optimization problem. max E t [ ∑ T i=t β i-t u(C i ) ] s.t. W t+1 = R(X t -C t )

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The persistence of macroeconomic shock effects on Russian household consumption

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  1. The persistence of macroeconomic shock effects on Russian household consumption Yana Yushkina

  2. Why is this interesting? Source: BEA

  3. Theory: intertemporal optimization problem • max Et[ ∑Ti=t βi-t u(Ci) ]s.t. Wt+1= R(Xt-Ct) • Wtis 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?

  4. Literature on consumption smoothing • Empirical estimation • Instrumenting for permanent income • Response of C to predictable changes in I • Response of C to exogenous shocks • Stillman (2003)

  5. Data • Russia Longitudinal Monitoring Survey (RLMS) • Contains information about household- level expenditures, income, and demographic characteristics

  6. Model • lnExpenditureht(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

  7. Issues • No data after 2007

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