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Consumption Heterogenity Over the Business Cycle

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  • Giacomo De Giorgi
  • Luca Gambetti

Abstract

We study consumption heterogeneity over the business cycle. Using household panel data from 1984 to 2010 in the US we find that the welfare cost of the business cycle is non-negligible, once agents heterogeneity is taken into account, and sums to about 1% of yearly consumption. This is due to the structure of comovements between the different parts of the consumption distribution, in particular the tails are highly volatile and nega- tively related to each other. We also find that business cycle fluctuations originating from exogenous financial shocks only hit the top end of the consumption distribution and therefore reduce consumption inequality.

Suggested Citation

  • Giacomo De Giorgi & Luca Gambetti, 2012. "Consumption Heterogenity Over the Business Cycle," UFAE and IAE Working Papers 904.12, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    • Handle: RePEc:aub:autbar:904.12
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    Cited by:

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    2. Andreas Schabert, 2017. "Welfare-Enhancing Distributional Effects of Central Bank Asset Purchases," Working Paper Series in Economics 94, University of Cologne, Department of Economics.

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    More about this item

    Keywords

    Consumption; Heterogeneity; Aggregate Shocks; Structural Factor Model; FAVAR.;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables

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