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Business Cycle Fluctuations and the Distribution of Consumption

Author

Listed:
  • Giacomo De Giorgi

    (University of Geneva Author=Person:pde483)

  • Luca Gambetti

    (Universitat Autonoma de Barcelona)

Abstract

This paper sheds new light on the interactions between business cycles and the consumption distribution. We use CEX consumption data and a factor model to characterize the cyclical dynamics of the consumption distribution. We first ensure that our approach closely matches business cycle fluctuations of consumption from the National Account. We then study the responses of the consumption distribution to TFP and uncertainty shocks. Importantly, we find that the right tail of the consumption distribution, comprised mostly of highly educated individuals, has a larger and quicker response than other parts of the distribution to shocks that drive cyclical fluctuations. We note that the cost of business cycle fluctuations, calculated using the full distribution of consumption, is larger than the cost found using aggregate consumption. Further, the shocks we analyze reduce consumption inequality on impact. (Copyright: Elsevier)

Suggested Citation

  • Giacomo De Giorgi & Luca Gambetti, 2017. "Business Cycle Fluctuations and the Distribution of Consumption," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 23, pages 19-41, January.
  • Handle: RePEc:red:issued:15-239
    DOI: 10.1016/j.red.2016.07.005
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    References listed on IDEAS

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    1. repec:eee:eecrev:v:103:y:2018:i:c:p:39-59 is not listed on IDEAS

    More about this item

    Keywords

    Consumption; Inequality; Cost of business cycles; Heterogeneity; Aggregate Shocks; Structural Factor Model; FAVAR;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables

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