Unemployment Expectations, Jumping (S,s) Triggers, and Household Balance Sheets
AbstractThis paper examines the relationship between household balance sheets, consumer purchases, and expectations. We find few robust empirical relationships between balance sheet measures and spending, but we do find that unemployment expectations are robustly correlated with spending. We then construct a formal model of durables and nondurables consumption with an explicit role for unemployment and for household debt. We find that the model is capable of explaining several empirical regularities which are, at best, unexplained by standard models. Finally, we show that a loosening of liquidity constraints can produce a runup in debt similar to that experienced recently in the US, and that after such a liberalization consumer purchases show heightened sensitivity to labor income uncertainty, providing a potential rigorous interpretation of the widespread view that the buildup of debt in the 1980s may have played an important role in the weakness of consumption during and after the 1990 recession.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6081.
Date of creation: Jul 1997
Date of revision:
Publication status: published as NBER Macroeconomics Annual, Bernanke, Benjamin S. and Julio Rotemberg,eds., Cambridge: MIT Press, 1997, pp. 165-229.
Note: EFG ME
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Other versions of this item:
- Chris Carroll & Wendy Dunn, 1997. "Unemployment Expectations, Jumping (S,s) Triggers, and Household Balance Sheets," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 165-230 National Bureau of Economic Research, Inc.
- Christopher D Carroll & Wendy E Dunn, 1997. "Unemployment Expectations Jumping (Ss) Triggers and Household Balance Sheets," Economics Working Paper Archive 386, The Johns Hopkins University,Department of Economics.
- Christopher D. Carroll & Wendy Dunn, 1997. "Mathematica code for Unemployment Expectations, Jumping (S,s) Triggers, and Household Balance Sheets," QM&RBC Codes, Quantitative Macroeconomics & Real Business Cycles 42, Quantitative Macroeconomics & Real Business Cycles.
- D1 - Microeconomics - - Household Behavior
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
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- Carroll, Christopher D & Fuhrer, Jeffrey C & Wilcox, David W, 1994.
"Does Consumer Sentiment Forecast Household Spending? If So, Why?,"
American Economic Review,
American Economic Association, vol. 84(5), pages 1397-1408, December.
- Christopher D. Carroll & Jeffery C. Fuhrer & David W. Wilcox, 1994. "RATS code for Does Consumer Sentiment Forecast Household Spending? If So, Why?," QM&RBC Codes, Quantitative Macroeconomics & Real Business Cycles 49, Quantitative Macroeconomics & Real Business Cycles.
- Deaton, Angus, 1991.
"Saving and Liquidity Constraints,"
Econometrica, Econometric Society,
Econometric Society, vol. 59(5), pages 1221-48, September.
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