No. 642 - Liquidity-poor households in the midst of the Covid-19 pandemic

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by Mariano Graziano and David LoschiavoOctober 2021

Liquid buffers enhance households' capacity to continue servicing their debt while maintaining reasonable levels of consumption when hit by an income shock. After the Covid-19 outbreak, alongside the sharp rise in saving rates, deposits have grown at a record pace in Italy. However, little is known about the distribution of such a rise. This work estimates the share of liquidity-poor households, i.e. those not having enough liquid resources to meet their needs in case of short periods of economic difficulty.

The analysis shows that in 2020 the sustained growth in deposits also involved households that, before the crisis, were at the bottom end of the liquidity ladder. Between December 2019 and December 2020, the share of liquidity-poor households decreased, albeit remaining high. Being indebted significantly increases the chance of being liquidity poor.

Published in: Review of Income and Wealth, v.68, 2, pp. 541-562

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