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Advertising and Aggregate Consumption: A Bayesian DSGE Assessment

Author

Listed:
  • Benedetto Molinari

    (Universidad Pablo de Olavide)

  • Francesco Turino

    (Universitat d'Alacant)

Abstract

Aggregate data reveal that advertising in the U.S. absorbs approximately 2% of GDP and has a well defined pattern over the business cycle, being strongly procyclical and highly volatile. Because the purpose of brand advertising is to foster sales, we ask whether such spending has an appreciable effect on the pattern of aggregate consumption and, through this avenue, on economic activity. This question is addressed by developing a dynamic general equilibrium model in which households' preferences for differentiated goods depend on the intensity of brand advertising, which is endogenously determined by profit-maximizing firms. Once the model is estimated to match the U.S. economy, it argues that the presence of advertising in the long run raises aggregate consumption and hours worked, eventually fostering economic activity. We also find that advertising has a relevant impact on fluctuations in consumption, investment and markup over the business cycle. All of the abovementioned effects are proven to epend crucially on the degree of competitiveness of advertising at the firm level.

Suggested Citation

  • Benedetto Molinari & Francesco Turino, 2015. "Advertising and Aggregate Consumption: A Bayesian DSGE Assessment," Working Papers 15.02, Universidad Pablo de Olavide, Department of Economics.
  • Handle: RePEc:pab:wpaper:15.02
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    References listed on IDEAS

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    Cited by:

    1. Andrea Mangani & Barbara Pacini, 2025. "The Impact of Fines on Deceptive Advertising: Evidence from Italy," Journal of Consumer Policy, Springer, vol. 48(1), pages 23-50, March.
    2. Alexandre Chirat, 2022. "Consumer sovereignty in the digital society," EconomiX Working Papers 2022-25, University of Paris Nanterre, EconomiX.
    3. Nocito, Samuel & Sartarelli, Marcello & Sobbrio, Francesco, 2023. "A beam of light: Media, tourism and economic development," Journal of Urban Economics, Elsevier, vol. 137(C).
    4. Mònica Guillen-Royo, 2018. "Sustainable consumption and wellbeing: does on-line shopping matter?," Working Papers on Innovation Studies 20181022, Centre for Technology, Innovation and Culture, University of Oslo.
    5. Darren Filson, 2023. "Dissecting decline in the economy-wide advertising intensity 1997-2017," Economics Bulletin, AccessEcon, vol. 43(3), pages 1444-1452.
    6. Herranz, Moisés Meroño & Turino, Francesco, 2023. "Tax evasion, fiscal policy and public debt: Evidence from Spain," Economic Systems, Elsevier, vol. 47(3).

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    More about this item

    Keywords

    Residual Wage Inequality; Wage Polarization; Price and Composition Effects; Routinization hypothesis; Skill Biased Technical Change; Occupational Tasks; Job Polarization.;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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