Bank Of Greece Sa · ATHEX:TELL
Bank Of Greece Sa — Technical Presentation (September 2022)
10 slides from Bank Of Greece Sa's technical presentation, Sep 29, 2022
Slide 1: Consumption effects of job loss expectations – new evidence for the euro area
Consumption effects of job loss expectations – new evidence for the euro area António Dias da Silva (ECB), Desislava Rusinova (ECB) and Marco Weissler (ECB) 29/09/2022 Work in progress This presentation should not be reported as representing the views of the European Central Bank (ECB). The views ex
Slide 2: Motivation
Motivation Probability and expectations of job loss (probability by country and income bracket) • Workers seem to have some private information about their job risk • However, there is a large individual and regional heterogeneity that could be exploited • Permanent Income Hypothesis (PIH): • expect
Slide 3: Research question
Research question Is there a link between job loss expectations and consumption behaviour? Previous literature: • Consumption reaction to persistent income shock (see Meghir and Pistaferri 2011 for an overview) • Exploit timing variation: consumption drops in advance of predictable job loss (e.g. He
Slide 4: Job loss expectations
Job loss expectations Histogram of job loss expectations (by displacement status) • Job loss expectations are strongly right skewed • More than 40% of respondents expect a zero probability of job loss • There is some bunching of replies at 0%, 50% and 100% • Workers who lose their job have higher jo
Slide 5: Permanent income hypothesis
Permanent income hypothesis • Lifetime utility maximisation given a standard budget constraint: • max∞ 𝐸𝑡 σ∞ 𝑠 𝑠=0 𝛽 𝑢 𝑐𝑡+𝑠 subject to: 𝐴𝑡+1 = 𝑦𝑡 − 𝑐𝑡 + 𝐴𝑡 1 + 𝑟 𝑐𝑡+𝑠 𝑠=0 • Assuming quadratic utility and β 1 + 𝑟 = 1 gives the Euler equation: 𝑐𝑡 = 𝐸𝑡 𝑐𝑡+1 • Solving the…
Slide 6: Empirical approach
Empirical approach • Define expectation error of individual i at time 𝑡 (Stephens 2004): 𝐸𝑥𝑝𝐸𝑟𝑟𝑜𝑟𝑖𝑡 = 𝐸𝑡 𝑃 𝑗𝑜𝑏𝑙𝑜𝑠𝑠𝑖𝑡+1 − 1 𝑗𝑜𝑏𝑙𝑜𝑠𝑠𝑖𝑡+1 ∈ −1,1
Slide 7: Empirical approach
Empirical approach • Define expectation error of individual i at time 𝑡 (Stephens 2004): 𝐸𝑥𝑝𝐸𝑟𝑟𝑜𝑟𝑖𝑡 = 𝐸𝑡 𝑃 𝑗𝑜𝑏𝑙𝑜𝑠𝑠𝑖𝑡+1 − 1 𝑗𝑜𝑏𝑙𝑜𝑠𝑠𝑖𝑡+1 ∈ −1,1 • Split expectation error into positive and negative expectation component: ∆𝑐𝑖𝑡+1 = 𝛼 + 𝛽1 𝐸𝑥𝑝𝐸𝑟𝑟𝑜𝑟𝑖𝑡+ + 𝛽2…
Slide 8: Main results
Main results • Total expectations error related to adjustment in consumption growth • We find an effect of completely unexpected job loss on overall consumption of 0.13 log points • This is also a large absolute effect given an annual consumption of 19,300€ of employed workers • Controlling for disp
Slide 9: Heterogeneity: Regional unemployment rate
Heterogeneity: Regional unemployment rate • Consumption drop is stronger for workers in regions with higher unemployment rates • Similar results for older or less educated workers • Unemployment persistence might be channel driving these findings • PIH would predict a stronger effect on consumption
Slide 10: Summary and policy implications
Summary and policy implications • PIH holds (asymmetrically?) 1) Consumption drops considerably after unexpected job loss 2) Effect is stronger if higher regional unemployment rate, older age or lower education → suggests consumption reaction related to re-employment probability • Implications for f
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