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    The Pass-Through of Uncertainty Shocks to Households
    31 Aug 2020Working Paper Summaries

    The Pass-Through of Uncertainty Shocks to Households

    by Marco Di Maggio, Amir Kermani, Rodney Ramcharan, Vincent Yao, and Edison Yu
    A firm’s stock price volatility during times of uncertainty can significantly reduce workers’ consumption and savings decisions. This paper sheds light on the economic effects of uncertainty, and in particular, how firms provide insurance to their workers during periods of turmoil.
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    Author 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.

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: August 2020
    • HBS Working Paper Number: NBER Working Paper Series, No. 27646
    • Faculty Unit(s): Finance
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    Marco Di Maggio
    Marco Di Maggio
    Ogunlesi Family Associate Professor of Business Administration
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