IDEAS home Printed from https://ideas.repec.org/p/cth/wpaper/gru_2020_021.html
   My bibliography  Save this paper

Pandemic Shocks and Household Spending

Author

Listed:
  • David Finck

    (Justus Liebig University Gießen)

  • Peter Tillmann

    (Justus Liebig University Gießen)

Abstract

We study the response of daily household spending to the unexpected component of the COVID-19 pandemic, which we label as pandemic shock. Based on daily forecasts of the number of fatalities, we construct the surprise component as the difference between the actual and the expected number of deaths. We allow for state-dependent effects of the shock depending on the position on the curve of infections. Spending falls after the shock and is particularly sensitive to the shock when the number of new infections is strongly increasing. If the number of infections grows moderately, the drop in spending is smaller. We also estimate the effect of the shock across income quartiles. In each state, low-income households exhibit a significantly larger drop in consumption than high-income households. Thus, consumption inequality increase after a pandemic shock. Our results hold for the US economy and the key US states. The findings remain unchanged if we choose alternative state-variables to separate regimes.

Suggested Citation

  • David Finck & Peter Tillmann, 2020. "Pandemic Shocks and Household Spending," GRU Working Paper Series GRU_2020_021, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
    • Handle: RePEc:cth:wpaper:gru_2020_021
    as

    Download full text from publisher

    File URL: https://www.cb.cityu.edu.hk/ef/doc/GRU/WPS/GRU%232020-021%20Tillman.pdf
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    COVID-19; pandemic; consumption; smooth-transition model; state-dependence;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • I10 - Health, Education, and Welfare - - Health - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cth:wpaper:gru_2020_021. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: GRU (email available below). General contact details of provider: https://edirc.repec.org/data/decithk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.