The contribution to the literature of the core analysis I carried out is threefold, and reflects the main milestones obtained through this project. First, under the assumptions of rational expectations and a Markov process for the permanent shock, the two components of income shock can be written as a function of income expectations and realizations (Pistaferri, 2001; Attanasio et al., 2017). More precisely, the permanent component is identified by revisions in income expectations, and the transitory shock is given by income innovation and deterministic factors. Therefore, I separately identify the evolution of permanent and transitory shocks during the two recessions. I also evaluate how these perceptions vary across cohorts. Second, I exploit information about the distribution of expected income to quantify perceived income uncertainty, which is measured at the individual level and not cross-sectionally (as done in Pistaferri (2001) and Attanasio et al. (2017). Finally, I contribute to the literature by illustrating how perceptions about the persistence of income shocks and income uncertainty relate to consumption expenditure. I first examine the relation between uncertainty and income shocks with household's consumption. I, then, set-up a simple life-cycle model and compare the predicted consumption path, for different cohorts, to the patterns we observe in the data. This exercise allows us to gauge the relevance of the channels we analyze in explaining the extraordinary shrink in households' consumption expenditure during the last recession.
Moreover, I examined other aspects of households’ consumption and labor supply during the Great Recession. These results further contribute to the understanding of individual and household behavior in recession periods.
The analysis I carried out during the MSCA fellowship has relevant policy implications and offer an instrument in the hand of policymakers to understand some aspects of the recent economic and financial crisis. Given the topical subject, investigating the determinants of the economic crisis contributes to inform the economic and policy debate in Europe. The studies I implemented provide policymakers with a useful tool to understand households’ choices and, thus, implement effective interventions in sustaining consumption and hampering economic downturns.
Finally, the Marie Skłodowska-Curie fellowship allowed me to consolidate my knowledge, to acquire new skills, to consolidate my professional maturity and to attain an independent position as a researcher. I strengthened my international networking, by interacting with outstanding scholars and by starting new collaborations with other research in European Universities (e.g. University of Oxford), which are the basis for long-term international collaborations.
