Consumption Heterogeneity over the Business Cycle
AbstractWe study consumption heterogeneity over the business cycle. Using household panel data from 1984 to 2010 in the US we find that the welfare cost of the business cycle is non-negligible, once agents heterogeneity is taken into account, and sums to about 1% of yearly consumption. This is due to the structure of comovements between the different parts of the consumption distribution, in particular the tails are highly volatile and negatively related to each other. We also find that business cycle fluctuations originating from exogenous financial shocks only hit the top end of the consumption distribution and therefore reduce consumption inequality.
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Bibliographic InfoPaper provided by Barcelona Graduate School of Economics in its series Working Papers with number 646.
Date of creation: Jun 2012
Date of revision:
Consumption; Heterogeneity; Aggregate Shocks; Structural Factor Model; FAVAR;
Other versions of this item:
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-07-08 (All new papers)
- NEP-BEC-2012-07-08 (Business Economics)
- NEP-MAC-2012-07-08 (Macroeconomics)
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