How Individuals Respond to a Liquidity Shock: Evidence from the 2013 Government Shutdown / Michael Gelman, Shachar Kariv, Matthew D. Shapiro, Dan Silverman, Steven Tadelis.

Format:

Book

Author/Creator:

Gelman, Michael.

Contributor:

National Bureau of Economic Research.

Kariv, Shachar.

Shapiro, Matthew D.

Silverman, Dan.

Tadelis, Steven.

Series:

Working Paper Series (National Bureau of Economic Research) no. w21025.

NBER working paper series no. w21025

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

How Individuals Respond to a Liquidity Shock

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2015.

Summary:

Using comprehensive account records, this paper examines how individuals adjusted spending and saving in response to a temporary drop in liquidity due to the 2013 U.S. government shutdown. The shutdown cut paychecks by 40% for affected employees, which was recovered within 2 weeks. Because the shutdown affected only the timing of payments, it provides a distinctive experiment allowing estimates of the response to a liquidity shock holding income constant. Spending dropped sharply, implying a naïve estimate of 58 cents less spending for every dollar of lost liquidity. This estimate overstates the consumption response. While many individuals had low liquid assets, they used multiple sources of short-term liquidity to smooth consumption. Sources of short-term liquidity include delaying recurring payments such as for mortgages and credit card balances.

Notes:

Print version record

March 2015.