The Persistence Of Macroeconomic Shock Effects on Russian

The Persistence Of Macroeconomic Shock Effects on Russian Household Consumption Yana Yushkina

Question How do macroeconomic crises affect household consumption of food items, non-food items, and durables in Russia? Magnitude Persistence

Motivation Crisis ↓ Consumer Confidence Economic Slowdown • Example of 2007 -2009 crisis • Important to know how consumption is affected • Permanent or temporary effect? • Amplification of effect in transition economies

Russia’s GDP

Household Consumption in Russia Figure 1. 1. Consumption in Russia 1994 -2003 12000 Real 1992 roubles 10000 8000 6000 4000 2000 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Source: Gerry and Li (2004)

Recent trends

Theory Modigliani and Brumberg (1954) ◦ Intertemporal utility maximization Friedman (1957)

Consumption Smoothing Literature Common approaches ◦ Empirical estimation ◦ Instrumenting for permanent income ◦ Response to predictable changes in income Another approach ◦ Unpredictable exogenous shock effects Stillman (2003), Skoufias (2003) My contribution

Data Russia Longitudinal Monitoring Survey (RLMS) Contains information about household - level expenditures, income, and demographic characteristics Covers 1992 -2007

Methodology Run panel regressions on different types (f, nf, d) of consumption as well as aggregate consumption Expect durables to be more affected ln Ch, t = β 1 ln Ch, t-1 + β 2 ln Yh, t + β 3 ln Yh, t-1 + β 4 Macro. Vart + β 5 Household Characteristicsht + β 6 Crisist * ln Yh, t + β 7 Crisist-1 * ln Yh, t + β 8 Householdh + β 9 Yeart +εh, t

Issues Dynamic panel bias

Special thanks to Prof. Alpanda and Prof. Barbezat!