NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

How Individuals Respond to a Liquidity Shock: Evidence from the 2013 Government Shutdown

Michael Gelman, Shachar Kariv, Matthew D. Shapiro, Dan Silverman, Steven Tadelis

NBER Working Paper No. 21025
Issued in March 2015, Revised in June 2018
NBER Program(s):Economic Fluctuations and Growth, Monetary Economics, Public Economics, Productivity, Innovation, and Entrepreneurship

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.

download in pdf format
   (831 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w21025

Published:

Users who downloaded this paper also downloaded* these:
La Porta and Shleifer w20205 Informality and Development
Sahm, Shapiro, and Slemrod w21220 Balance-Sheet Households and Fiscal Stimulus: Lessons from the Payroll Tax Cut and Its Expiration
Romer and Romer w21021 New Evidence on the Impact of Financial Crises in Advanced Countries
Friedman The Permanent Income Hypothesis
Parker w21369 Why Don't Households Smooth Consumption? Evidence from a 25 Million Dollar Experiment
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us