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  • July 2022
  • Article
  • Journal of Financial Economics

The Pass-Through of Uncertainty Shocks to Households

By: Marco Di Maggio, Amir Kermani, Rodney Ramcharan, Vincent Yao and Edison Yu
  • Format:Print
  • | Pages:20
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Abstract

Using new employer-employee matched data, this paper investigates the impact of uncertainty, as measured by idiosyncratic stock market volatility, on individual outcomes. We find that firms provide at best partial insurance to their workers. An increase in firm-level uncertainty is associated with a decline in total compensation, especially in variable pay. In turn, individuals reduce their durable goods consumption in response to these uncertainty shocks. These shocks also lead to greater financial fragility among lower-income earners. We also construct a new county-level uncertainty shock and find that local uncertainty shocks reduce county level durable consumption.

Keywords

Employment Risk; Consumption; Employment; Risk and Uncertainty; System Shocks; Insurance; Household; Spending

Citation

Di Maggio, Marco, Amir Kermani, Rodney Ramcharan, Vincent Yao, and Edison Yu. "The Pass-Through of Uncertainty Shocks to Households." Journal of Financial Economics 145, no. 1 (July 2022): 85–104. (2023 Fama-DFA Prize for the Best Paper Published in the Journal of Financial Economics in Asset Pricing, 2nd place.)
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About The Author

Marco Di Maggio

Finance
→More Publications

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