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The Extensive Margin of Aggregate Consumption Demand

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Listed:
  • Claudio Michelacci

    (EIEF and CEPR)

  • Luigi Paciello

    (EIEF and CEPR)

  • Andrea Pozzi

    (EIEF and CEPR)

Abstract

About half of the cyclical change in US non-durable consumption expenditure is due to changes in the products entering households’ consumption basket (the extensive margin). Changes in the basket depend mostly on fluctuations in the rate at which households add new products; removals are relatively acyclical. These patterns are largely explained by the fact that households respond to income increases by adopting new product varieties in their consumption basket. Fluctuations in household adoption are a prominent determinant of the aggregate demand for new products and amplify the long-run welfare effects of aggregate shocks.

Suggested Citation

  • Claudio Michelacci & Luigi Paciello & Andrea Pozzi, 2019. "The Extensive Margin of Aggregate Consumption Demand," EIEF Working Papers Series 1906, Einaudi Institute for Economics and Finance (EIEF), revised Apr 2019.
    • Handle: RePEc:eie:wpaper:1906
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    1. Mark Aguiar & Mark Bils & Corina Boar, 2020. "Who Are the Hand-to-Mouth?," Working Papers 2020-9, Princeton University. Economics Department..
    2. Mark Aguiar & Corina Boar & Mark Bils, 2019. "Who Are the Hand-to-Mouth?," 2019 Meeting Papers 525, Society for Economic Dynamics.

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