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Asymmetric Responses of Consumer Spending to Energy Prices: A Threshold VAR Approach

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  • Edward S. Knotek
  • Saeed Zaman

Abstract

We document asymmetric responses of consumer spending to energy price shocks: Using a multiple-regime threshold vector autoregressive model estimated with Bayesian methods on US data, we find that positive energy price shocks have a larger negative effect on consumption compared with the increase in consumption in response to negative energy price shocks. For large shocks, the cumulative consumption responses are three to five times larger for positive than for negative shocks. Digging into disaggregated spending, we find that the estimated asymmetric responses are strongest for durable goods, but asymmetries are also present in the responses of nondurables and services.

Suggested Citation

  • Edward S. Knotek & Saeed Zaman, 2020. "Asymmetric Responses of Consumer Spending to Energy Prices: A Threshold VAR Approach," Working Papers 202017, Federal Reserve Bank of Cleveland.
  • Handle: RePEc:fip:fedcwq:88169
    DOI: 10.26509/frbc-wp-202017
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    File URL: https://doi.org/10.26509/frbc-wp-202017
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    More about this item

    Keywords

    consumption; energy prices; asymmetry; multivariate threshold models; nonlinear structural impulse response;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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