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The asymmetric effects of deflation on consumption spending: evidence from the Great Depression

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  • J. Scott Davis

Abstract

Does expected deflation lead to a fall in consumption spending? Using data for U.S. grocery store sales and department store sales from 1919 to 1939, this paper shows that expected price changes have asymmetric effects on consumption spending. Department store sales (durable consumption) react negatively to the expectation of falling prices, but grocery store sales (non-durable consumption) do not react to expected price changes.

Suggested Citation

  • J. Scott Davis, 2015. "The asymmetric effects of deflation on consumption spending: evidence from the Great Depression," Globalization Institute Working Papers 226, Federal Reserve Bank of Dallas.
    • Handle: RePEc:fip:feddgw:226
    DOI: 10.24149/gwp226
    Note: Published as: Davis, J. Scott (2015), "The Asymmetric Effects of Deflation On Consumption Spending: Evidence from the Great Depression," Economic Letters 130: 105-108.
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    1. De Long, James Bradford & Summers, Lawrence H, 1986. "Is Increased Price Flexibility Stabilizing?," American Economic Review, American Economic Association, vol. 76(5), pages 1031-1044, December.
    2. Federico Guerrero & Elliott Parker, 2006. "Deflation, Recession and Slowing Growth: Finding the Empirical Links," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(1), pages 37-49, February.
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    5. Masahiro Hori & Satoshi Shimizutani, 2005. "Price expectations and consumption under deflation: evidence from Japanese household survey data," International Economics and Economic Policy, Springer, vol. 2(2), pages 127-151, November.
    6. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-276, June.
    7. Leamer Edward E, 2011. "Deflation Dread Disorder "The CPI is Falling!"," The Economists' Voice, De Gruyter, vol. 8(1), pages 1-5, February.
    8. Murphy, Kevin M & Topel, Robert H, 2002. "Estimation and Inference in Two-Step Econometric Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 88-97, January.
    9. Barro, Robert J, 1978. "Unanticipated Money, Output, and the Price Level in the United States," Journal of Political Economy, University of Chicago Press, vol. 86(4), pages 549-580, August.
    10. Jens H. E. Christensen, 2009. "Inflation expectations and the risk of deflation," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue nov2.
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    Cited by:

    1. Binder, Carola Conces, 2016. "Estimation of historical inflation expectations," Explorations in Economic History, Elsevier, vol. 61(C), pages 1-31.

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    More about this item

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative

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