Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/223273
Authors: 
Kovacs, Agnes
Rondinelli, Concetta
Trucchi, Serena
Year of Publication: 
2019
Series/Report no.: 
IFS Working Papers No. W19/29
Abstract: 
This paper investigates how different income shocks shape consumption dynamics over the business cycle. First, we break new ground by creating a unique, panel dataset of transitory and permanent income shocks, using subjective income expectations from the Dutch Household Survey. Second, we evaluate whether these observed income shocks help to explain contractions in aggregate consumption over the two most recent crises. We find that the income shocks experienced during the 2008-2009 Global Financial Crisis are of a different nature than the shocks experienced during the 2011-2012 Sovereign Debt Crisis, with the 2011-2012 shocks being perceived as more permanent. This helps explain why consumption falls less during the Global Financial Crisis, despite the fact that income declines more than during the Sovereign Debt Crisis.
Subjects: 
subjective expectations
income shocks
consumption
financial crisis
JEL: 
D12
E21
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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