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The asymmetric effects of deflation on consumption spending: evidence from the Great Depression

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  • J. Scott Davis

Abstract

Does expected deflation lead to a fall in consumption spending? Using data for U.S. grocery store sales and department store sales from 1919 to 1939, this paper shows that expected price changes have asymmetric effects on consumption spending. Department store sales (durable consumption) react negatively to the expectation of falling prices, but grocery store sales (non-durable consumption) do not react to expected price changes.

Suggested Citation

  • J. Scott Davis, 2015. "The asymmetric effects of deflation on consumption spending: evidence from the Great Depression," Globalization Institute Working Papers 226, Federal Reserve Bank of Dallas.
  • Handle: RePEc:fip:feddgw:226
    DOI: 10.24149/gwp226
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    References listed on IDEAS

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    1. Barro, Robert J, 1978. "Unanticipated Money, Output, and the Price Level in the United States," Journal of Political Economy, University of Chicago Press, vol. 86(4), pages 549-580, August.
    2. De Long, James Bradford & Summers, Lawrence H, 1986. "Is Increased Price Flexibility Stabilizing?," American Economic Review, American Economic Association, vol. 76(5), pages 1031-1044, December.
    3. Murphy, Kevin M & Topel, Robert H, 2002. "Estimation and Inference in Two-Step Econometric Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 88-97, January.
    4. Federico Guerrero & Elliott Parker, 2006. "Deflation, Recession and Slowing Growth: Finding the Empirical Links," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(1), pages 37-49, February.
    5. Guerrero, Federico & Parker, Elliott, 2006. "Deflation and recession: Finding the empirical link," Economics Letters, Elsevier, vol. 93(1), pages 12-17, October.
    6. Jens H. E. Christensen, 2009. "Inflation expectations and the risk of deflation," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue nov2.
    7. Masahiro Hori & Satoshi Shimizutani, 2005. "Price expectations and consumption under deflation: evidence from Japanese household survey data," International Economics and Economic Policy, Springer, vol. 2(2), pages 127-151, November.
    8. Cargill, Thomas F. & Parker, Elliott, 2004. "Price deflation and consumption: central bank policy and Japan's economic and financial stagnation," Journal of Asian Economics, Elsevier, vol. 15(3), pages 493-506, June.
    9. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-276, June.
    10. Leamer Edward E, 2011. "Deflation Dread Disorder "The CPI is Falling!"," The Economists' Voice, De Gruyter, vol. 8(1), pages 1-5, February.
    11. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-247, February.
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    Cited by:

    1. Binder, Carola Conces, 2016. "Estimation of historical inflation expectations," Explorations in Economic History, Elsevier, vol. 61(C), pages 1-31.

    More about this item

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative

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