Shopping in Macroeconomics
Sunday, Jan. 7, 2018 10:15 AM - 12:15 PM
- Chair: Yuriy Gorodnichenko, University of California-Berkeley
Inflation at the Household Level
AbstractWe 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
AbstractWe 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
AbstractHouseholds 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.
- E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
- E3 - Prices, Business Fluctuations, and Cycles