Consumer finance in Russia: Income shocks and consumption smoothing

Abstract

On the basis of the Russian Survey of Household Finance , we investigate the consumption behavior of Russian households, who faced a negative income shock at the end of 2014. We also analyze the role of crisis-adjusting consumption strategies based on the instruments of financial market, namely an increase in the stock of debt or decrease in liquid and non-liquid assets. Results based on two identification procedures of income shocks show that Russian households were able to smooth around 50% of their income shock. The ability to smooth consumption is lower for those living in rural areas, households with higher levels of debt accumulated before 2014 and those with lower income. Overall, Russian households are not used to spend savings or increase their debt in response to the income changes with the exception of those who already had a higher level of debt by 2014. The results may have important implications for the Bank of Russia policy.