Consumption smoothing in Russia

Abstract

Using a panel from the Russian Longitudinal Monitoring Survey (1994-2004), this paper investigates to what extent Russian households have been able to maintain their living standards while suffering income shocks. Consumption smoothing is modelled by means of an equilibrium correction mechanism, which disentangles short-run dynamics and long-run equilibrium adjust- ments. GMM estimation is used to control for individual household effects in the presence of dynamics. Additionally, we differentiate between food and non-food consumption, positive and negative shocks, rural and urban areas, and several levels of poverty risk. We find that dynamics are important in the consumption equation, and that estimates are sensitive to imputation errors in home food production. No strong claims can be made regarding heterogeneity in smoothing behaviour.