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|dc.description.abstract||This paper examines the extent to which consumption in Russian households responds toexogenous income shocks. During the time period studied in this paper (1994 – 1998),Russia experienced two major economic crises. Both featured extreme movements in thereal ruble-dollar exchange rate. The price of oil, which is typically thought to have a strongeffect on the Russian economy, was also quite volatile during this time period. This paperexploits these large changes in oil prices and exchange rates, as well as community-levelvariations in wage and pension arrears, to identify exogenous shocks to household income.Using representative panel data on urban households from the Russian LongitudinalMonitoring Survey, I find that a household which experiences an exogenous shock of 10% ofits total income changes both its food and total non-durable expenditure by 7-11%. Mostevidence indicates that these shocks are transitory in nature and thus the traditional LifeCycle/Permanent Income Hypothesis model is firmly rejected as describing the behavior ofRussian households. Additional results indicate that changes in household savings arenegatively related to exogenous income shocks, with this relationship strongest for lowwealth households. Only models of consumption which include precautionary savingsmotives can explain why poorer households both reduce their consumption and increasetheir savings in response to an exogenous decline in income.||en_US|
|dc.publisher|||aInstitute for the Study of Labor (IZA) |cBonn||en_US|
|dc.relation.ispartofseries|||aIZA Discussion paper series |x411||en_US|
|dc.title||The Response of Consumption in Russian Households to Economic Shocks||en_US|
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