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Covid-19 and the Return of the 3-Star Consumption Functions in the US

Author

Listed:
  • Mariam Tchanturia

    (Macroeconomic Research Division, National Bank of Georgia)

  • Jared Laxton

    (Economist at Advanced Macro Policy Modelling (AMPM))

  • Douglas Laxton

    (NOVA School of Business and Economics, Saddle Point Research, The Better Policy Project)

  • Shalva Mkhatrishvili

    (Head of Macroeconomics and Statistics Department, National Bank of Georgia)

Abstract

COVID-19 was an unprecedented event that led to an extraordinary fiscal and monetary stimulus that resulted in a doubling in the S&P and over 50 percent increase in property prices in the US. These increases in asset prices combined with financial saving resulted in a 45 trillion dollar increase in US household net worth between 2020Q1 and 2023Q4, over twice the value of all goods and services produced by the US economy in 2019 (annual GDP was 21 trillion dollars in 2019). We believe this macroeconomic backdrop will play a prominent role in how the economy is going to evolve in the post-COVID-19 world. Our analysis begins with looking at the drivers of US consumption pre-COVID-19 and during COVID-19. We carry out a 2-step regression analysis by estimating the US consumption function in different periods with distinct features and incorporating different variables at each step to achieve stability in the parameters during the COVID-19 period. We use this analysis as a jumping off point for thinking about potential macro-financial risks caused by imbalances in the economy and whether monetary policy has been sufficient to reign in real economic activity. Our analysis suggests that the lower postCOVID-19 saving rate will likely persist until the economy experiences a tightening in financial conditions and large correction in equity and house prices.

Suggested Citation

  • Mariam Tchanturia & Jared Laxton & Douglas Laxton & Shalva Mkhatrishvili, 2024. "Covid-19 and the Return of the 3-Star Consumption Functions in the US," NBG Working Papers 03/2024, National Bank of Georgia.
    • Handle: RePEc:aez:wpaper:2024-03
    as

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    File URL: https://nbg.gov.ge/fm/wp/nbg-wp-2024-03.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Consumption Function; Monetary Policy; Neutral Rate;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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