We estimate marginal propensities to consume from wealth shocks for Italian households in the early part of the Great Recession. Large asset price shocks in 2008 underpin an IV estimator. A euro fall in risky financial wealth resulted in cuts in annual total (non‐durable) consumption of 8.5‐ 9 (5.5‐5.7) cents. There is evidence of effects on food spending. Responses of total and nondurable spending to changes in housing wealth are 0.2 to 0.3 cents/euro. Point estimates of the effect of the financial wealth shock are larger if the youngest and/or oldest households are excluded. Results indicate that responses to the wealth shock were stronger for those who became pessimistic about the stock market, and for those owners of risky assets who also held mortgage debt. Counterfactuals indicate financial wealth effects were important (relative to other factors) for consumption falls in Italy in 2007/08.
Authors

Research Associate University of Bologna
Matthew is Associate Professor at the University of Bologna focusing on consumption and savings choices and how policy affects them.
Research Associate University of Bologna
Renata is an Associate Professor at the University of Bologna and IFS Research Associate, working on household consumption, saving and labour supply.

Serena Trucchi
Report details
- DOI
- 10.1920/re.ifs.2024.0475
- Publisher
- Bologna: Dipartimento di Scienze economiche DSE
Suggested citation
R, Bottazzi and S, Trucchi and M, Wakefield. (2017). Wealth effects and the consumption of Italian households in the great recession. Bologna, Italy: Bologna: Dipartimento di Scienze economiche DSE. Available at: https://ifs.org.uk/publications/wealth-effects-and-consumption-italian-households-great-recession (accessed: 8 February 2025).
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