How households adjust purchases and consumption to income and wealth shocks

Meet the researchers: Roman Inderst, Calogero Brancatelli & Adrian Fritzsche
Posted on May 26, 2020

Meet the winners of the TFI long-term research grant: Roman Inderst, Calogero Brancatelli and Adrian Fritzsche from Goethe University Frankfurt.

They will investigate how households adjust their spending and consumption when facing various shocks to income and wealth. They will also analyse the implications that these shocks and adjustments have on consumer overall well-being.

The financial crisis of 2008 and the subsequent economic recession have deeply affected economic conditions and well-being of households across the world, including severe cuts in income and wealth. Understanding precisely how households adjust individual economic behaviour in response to such income and wealth shocks, for instance, by adjusting individual purchasing decisions, can inform policy interventions and private sector actions during recessions.

The focus of our research agenda is to introduce a data innovation to investigate how income and wealth shocks, notably in the course of the recession following the 2008 financial crisis, affected purchase decisions and consumption of Dutch households and thereby also potentially health (and thus well-being in a wider sense). For this purpose, in October 2019 we completed the unique and novel matching of individual-level administrative data from tax recordings, made available through Statistics Netherlands (CBS), with detailed transaction data from a large commercial panel.

Our key novelty lies in the unique combination of datasets which allow us to reduce measurement errors and to disentangle in particular households’ responses to economic shocks, for instance through turning to lower-priced (private label) products or shopping at discounters. By uncovering some of the underlying mechanisms of consumption adjustment in response to difficult economic circumstances, our analysis can potentially be helpful for academics as well as practitioners to forecast the impact of the current COVID19 crisis, which will involve considerable and also potentially lasting changes in income and wealth.

“Understanding precisely how households react to income and wealth shocks is key to understand the full impact of a recession and to design adequate measures of response.”

What motivated you to work together with the Think Forward Initiative?

We applied for this TFI programme because our research project contributes to the TFI’s objective to use cutting-edge and data-driven research to learn more about households’ decision-making, in our case the adjustment of households’ consumption to financial shocks. The insights from this research project are relevant for a broad audience ranging from academics, policy makers, practitioners to consumers. TFI provides us with an ideal platform to communicate our research results to this broader audience and thus to raise awareness for the relevance of our research also beyond the academic community.

How do you expect your research results to contribute to people’s financial well-being?

Understanding how households’ consumption reacts to income and wealth shocks can inform both policy interventions during recessions, e.g. in terms of targeted fiscal measures. Our research also has implications for businesses as it provides detailed insights into consumers’ responses when they may potentially try to mitigate shocks to income and wealth, e.g., by redirecting purchases to other products or other retailers. Consumers may directly profit when firms are able to better match their strategies to households’ needs and adjustments. Lastly, we may identify areas where households could, depending on preferences, improve their decisions so as notably to better mitigate financial shocks.

The research team


Roman Inderst is a Professor of Economics and Finance at Goethe University Frankfurt. Before returning to Germany, he was Full Professor of Economics and Full Professor of Accounting & Finance at the London School of Economics. Previous positions include that of tenured Professor of Finance at INSEAD. Roman graduated in Germany and holds degrees in Economics, Sociology and Business Studies. He is a recipient of the Leibniz Preis and of an ERC Advanced Grant. Roman has published in the fields of economics, finance and management science.

Calogero Brancatelli is a Ph.D. student and research assistant at the Chair of Roman Inderst at Goethe University Frankfurt. Previous positions include a Traineeship at the ECB and a Carlo-Schmid Fellowship at the World Bank. Calogero graduated in Germany and holds a Master’s degree in Economics. During the course of his studies he was ERASMUS student at Sciences Po Paris and Copenhagen Business School. Calogero is a recipient of a merit scholarship from the German National Academic Foundation (Studienstiftung des deutschen Volkes) and a Carlo-Schmid Scholarship from the German Academic Exchange Service (Deutscher Akademischer Austauschdienst, DAAD).

Adrian Fritzsche is a Ph.D. student and research assistant at the Chair of Roman Inderst at Goethe University Frankfurt. Adrian graduated from the London School of Economics and Political Science and holds a Master’s degree in Economics. Previously, he studied at Frankfurt School of Finance and Management in Frankfurt, Germany. He studied at Beijing Normal University in China as part of an exchange program. During his studies, Adrian received a merit scholarship from Konrad-Adenauer Foundation as well as a PROMOS Scholarship (Deutscher Akademischer Austauschdienst, DAAD).