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Working Paper
The Effects of Macroeconomic Shocks: Household Financial Distress Matters
Mustre-del-Rio, Jose; Sanchez, Juan M.; Mather, Ryan; Athreya, Kartik B. (2023-09-11)
When a macroeconomic shock arrives, variation in household balance-sheet health (captured by the presence of financial distress “FD”), leads to differential access to credit, and hence a distribution of consumption responses. As we document, though, over the past two recessions, households in prior FD also experienced macroeconomic shocks more intensely than others, leading to a distribution of shock severity. Quantifying the importance of each dimension of heterogeneity (FD or shock severity) for consumption requires a structural model. We find that heterogeneity in FD matters more than ...
Working Papers , Paper 2019-025

Journal Article
Negative Sentiment toward Spending and Declining Real Incomes May Meaningfully Lower Consumption
Cakir Melek, Nida; Pollard, Emily (2022-11-04)
Despite a contraction in real GDP in the first half of 2022, consumer spending has remained resilient. We examine a set of factors that have historically affected consumption growth and find that excess savings have boosted consumer spending during the COVID-19 pandemic. However, as excess savings decline and economic relationships normalize, negative sentiment toward spending and declining real incomes may meaningfully lower consumption.
Economic Bulletin , Issue November 4, 2022 , Pages 4

Working Paper
Understanding Climate Damages: Consumption versus Investment
Gibson, Matthew; Fried, Stephie; Casey, Gregory (2022-10-04)
Existing climate-economy models use aggregate damage functions to model the effects of climate change. This approach assumes climate change has equal impacts on the productivity of firms that produce consumption and investment goods or services. We show the split between damage to consumption and investment productivity matters for the dynamic consequences of climate change. Drawing on the structural transformation literature, we develop a framework that incorporates heterogeneous climate damages. When investment is more vulnerable to climate, we find short-run consumption losses will be ...
Working Paper Series , Paper 2022-21

Report
Business cycle fluctuations and the distribution of consumption
De Giorgi, Giacomo; Gambetti, Luca (2015-03-01)
This paper sheds new light on the interactions between business cycles and the consumption distribution. We use Consumer Expenditure Survey data and a factor model to characterize the cyclical dynamics of the consumption distribution. We first establish that our approach is able to closely match business cycle fluctuations of consumption from the National Account. We then study the responses of the consumption distribution to total factor productivity shocks and economic policy uncertainty shocks. Importantly, we find that the responses of the right tail of the consumption distribution, ...
Staff Reports , Paper 716

Journal Article
Household Inequality and the Consumption Response to Aggregate Real Shocks
Amromin, Gene; Schulze, Karl; De Nardi, Mariacristina (2018)
The drop in output and consumption that occurred during the Great Recession has been large and prolonged. Figure 1 displays per capita U.S. real gross domestic product (GDP) and personal consumption expenditures (PCE) between 1985 and 2016 and highlights the large drop in both consumption and output that occurred starting in 2007 and its parallel shift compared with the previous trend. In this article, we ask why consumption has dropped so much and has been recovering so slowly. We also ask to what extent household inequality before and after the Great Recession interacted with the recession ...
Economic Perspectives , Issue 1 , Pages 1-20

Report
Have US Households Depleted All the Excess Savings They Accumulated during the Pandemic?
Barbiero, Omar; Patki, Dhiren (2023-11-07)
During the COVID-19 pandemic, US households accumulated a historically high volume of personal savings. As the crisis waned, personal savings started to decline. Economists disagree on whether households have drained their excess savings, and they disagree on which income group is more likely to have done so. The lack of consensus stems from different assumptions about today’s long-term saving rate, which is used as a benchmark to define excess savings. If households need to set aside a higher share of their income now relative to before the pandemic, then pandemic-era excess savings have ...
Current Policy Perspectives

Discussion Paper
Spending Down Pandemic Savings Is an “Only-in-the-U.S.” Phenomenon
Klitgaard, Thomas; Higgins, Matthew (2023-10-11)
Household saving soared in the United States and other high-income economies during the pandemic, as consumers cut back on spending while government policies supported incomes. More recently, saving behavior has diverged, with the U.S. saving rate dropping below its pre-pandemic average while saving rates elsewhere have remained above their pre-pandemic averages. As a result, U.S. consumers have been spending down the “excess savings” built up during the pandemic while the excess savings abroad remain untapped. This divergent behavior helps explain why U.S. GDP has returned to its ...
Liberty Street Economics , Paper 20231011

Report
Consumption Spending during the COVID-19 Pandemic
Cotton, Christopher D.; Garga, Vaishali; Rohan, Justin (2021-12-03)
We use a novel empirical approach to decompose the impact of different economic, demographic, and COVID-19–related factors (such as lockdowns, case counts, and vaccination rates) on consumption spending on a week-by-week basis during the pandemic. This allows us to study how demographic and economic groups were differentially affected by the pandemic while crucially controlling for other factors. Our results imply that Hispanic and college-educated populations showed particularly large and persistent declines in relative spending. We also compute the relative importance of factors in ...
Current Policy Perspectives

Working Paper
On the Distributional Effects of International Tariffs
Hur, Sewon; Carroll, Daniel R. (2020-06-22)
What are the distributional consequences of tariffs? We build a trade model with incomplete asset markets and households that are heterogeneous in their income, wealth, and labor skill. We increase tariffs by 5 percentage points and examine several budget-neutral fiscal policies for redistributing tariff revenue. Without redistribution, tariffs hurt all households, but higher tradables prices disproportionately harm the poor and the ensuing decline in the skill premium disproportionately harms the skilled. With redistribution, lowering the labor income tax leads to lower economic activity but ...
Working Papers , Paper 20-18

Working Paper
Container Trade and the U.S. Recovery
Kilian, Lutz; Nomikos, Nikos; Zhou, Xiaoqing (2021-06-17)
Since the 1970s, exports and imports of manufactured goods have been the engine of international trade and much of that trade relies on container shipping. This paper introduces a new monthly index of the volume of container trade to and from North America. Incorporating this index into a structural macroeconomic VAR model facilitates the identification of shocks to domestic U.S. demand as well as foreign demand for U.S. manufactured goods. We show that, unlike in the Great Recession, the primary determinant of the U.S. economic contraction in early 2020 was a sharp drop in domestic demand. ...
Working Papers , Paper 2108

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