Income Shocks, Food Expenditures, Calorie Intake and Body Weight: A multilevel structural equation modelling analysis

Type Working Paper
Title Income Shocks, Food Expenditures, Calorie Intake and Body Weight: A multilevel structural equation modelling analysis
Author(s)
URL http://www.statistics.gov.hk/wsc/CPS009-P5-S.pdf
Abstract
We develop multilevel structural equation models to jointly estimate the extent to which unanticipated income shocks affect household-level food expenditures, and individual-level calorie intake and body weight. Drawing on economic theory, we start by decomposing the income process into shocks that only affect the current period (‘transitory shocks’, such as getting a bonus) and those that affect the current period as well as all future periods (‘permanent shocks’, such as a promotion or being made redundant). We then exploit time variation in the second order moments of the income process to estimate the effects of permanent and transitory shocks on household- and individual-level responses to such shocks, accounting for the clustering of individuals’ diets within households. We find that – consistent with the economic theory – permanent income shocks have large effects on food expenditure, calorie intake and body weight, with much smaller, often insignificant, effects of transitory shocks

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