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Shopping in Macroeconomics

Paper Session

Sunday, Jan. 7, 2018 10:15 AM - 12:15 PM

Pennsylvania Convention Center, 204-B
Hosted By: American Economic Association
  • Chair: Yuriy Gorodnichenko, University of California-Berkeley

Consumption Inequality and The Frequency of Purchases

Olivier Coibion
,
University of Texas-Austin
Yuriy Gorodnichenko
,
University of California-Berkeley
Dmitri Koustas
,
University of California-Berkeley

Abstract

We document a decline in the frequency of shopping trips in the U.S. since 1980 and consider its implications for the measurement of consumption inequality. A decline in shopping frequency as households stock up on storable goods (i.e. inventory behavior) will lead to a rise in expenditure inequality when the latter is measured at high frequency, even when underlying consumption inequality is unchanged. We find that most of the recently documented rise in expenditure inequality in the U.S. since the 1980s can be accounted for by this phenomenon. Using detailed micro data on spending which we link to data on club/warehouse store openings, we directly attribute much of the reduced frequency of shopping trips to the rise in club/warehouse stores.

Inflation at the Household Level

Greg Warren Kaplan
,
University of Chicago
Sam Schulhofer-Wohl
,
Federal Reserve Bank of Chicago

Abstract

We use scanner data to estimate inflation rates at the household level. Households’ inflation
rates are remarkably heterogeneous, with an interquartile range between 6.2 to 9.0 percentage points on an annual basis. Most of the heterogeneity comes not from variation in broadly defined consumption bundles but from variation in prices paid for the same types of goods — a source of variation that previous research has not measured. The entire distribution of household inflation rates shifts in parallel with aggregate inflation. Lower-income households experience markedly higher inflation, with a difference in average inflation rates of nearly 1 percentage point per year between the highest- and lowest-income households. Nonetheless, most of the cross-sectional variation in inflation rates is uncorrelated with observable characteristics. Deviations from aggregate inflation exhibit only slightly negative serial correlation within each household over time, implying that the difference between a household’s price level and the aggregate price level is persistent. Together, the large cross-sectional dispersion and low serial correlation of household-level inflation rates mean that almost all of the variability in a household’s inflation rate over time comes from variability in household-level prices relative to average prices for the same goods, not from variability in the aggregate inflation rate. We provide a characterization of the stochastic process for household inflation that can be used to calibrate models of household decisions.

Trading Down and the Business Cycle

Nir Jaimovich
,
University of Southern California
Sergio Rebelo
,
Northwestern University
Arlene Wong
,
Princeton University

Abstract

We document two facts. First, during recessions consumers trade down in the quality of the goods and services they consume. Second, the production of low-quality goods is less labor intensive than that of high-quality goods. So, when households trade down, labor demand falls, increasing the severity of recessions. We find that the trading-down phenomenon accounts for a substantial fraction of the fall in U.S. employment in the recent recession. We study two business cycle models that embed quality choice and find that the presence of quality choice magnifies the response of these economies to real and monetary shocks.

Shopping for Lower Sales Tax Rates

Scott Baker
,
Northwestern University
Lorenz Kueng
,
Northwestern University

Abstract

Households cut spending similarly on both taxable and tax-exempt goods in the face of increases in sales tax rates. We demonstrate that this seemingly irrational behavior is the rational response in the presence of shopping complementarities across storable goods, and that heterogeneity in these complementarities predicts shopping behavior. Moreover, households also respond across a number of other dimensions: Households increase online shopping, shift shopping trips to neighboring tax jurisdictions and stock up on storable goods before the increase takes place. While salience of tax changes is high on average, local salience of upcoming sales tax changes also elicits larger responses.
Discussant(s)
Michael Weber
,
University of Chicago
Dirk Krueger
,
University of Pennsylvania
Raphael Schoenle
,
Brandeis University
Jessie Handbury
,
University of Pennsylvania
JEL Classifications
  • E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
  • E3 - Prices, Business Fluctuations, and Cycles