IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/19773.html

Non-Essential Business Cycles

Author

Listed:
  • Andreolli, Michele
  • Rickard, Natalie
  • Surico, Paolo

Abstract

This paper documents three main regularities on post-WWII data for the United States: (i) spending on non-essentials is more sensitive to the business-cycle than spending on essentials; (ii) earnings in non-essential sectors are more cyclical than earnings in essential sectors; (iii) non-essential industries employ a larger share of hand-to-mouth workers. We develop and estimate a two-sector New-Keynesian model with non-homothetic preferences, hand-to-mouth workers and sectoral labour force heterogeneity that is consistent with these findings. We use the model to revisit the transmission of stabilisation policies. A main finding is that the interaction of cyclical product demand composition and cyclical labour demand composition greatly amplifies the effects of monetary policy, which in our economy can be equivalently implemented by a mix of consumption and labour taxes. However, a VAT change applied only to non-essentials (only to essentials) has a far larger (smaller) impact than a uniform VAT change of the same size.

Suggested Citation

  • Andreolli, Michele & Rickard, Natalie & Surico, Paolo, 2024. "Non-Essential Business Cycles," CEPR Discussion Papers 19773, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19773
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP19773
    Download Restriction: no
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:19773. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CEPR (email available below). General contact details of provider: https://cepr.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.