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Demand Non-homotheticities over the Business Cycle

Paper Session

Saturday, Jan. 6, 2018 8:00 AM - 10:00 AM

Pennsylvania Convention Center, 105-A
Hosted By: American Economic Association
  • Chair: Andrei Levchenko, University of Michigan

The Welfare Consequences of Income-Induced Expenditure Switching

Rudolfs Bems
University of Tokyo
Julian Di Giovanni


Wealth Redistribution After Exchange Rate Devaluations

Andres Drenik
Columbia University
Gustavo Pereira
Columbia University
Diego Perez
New York University


We characterize the currency denomination of households’ assets and liabilities for various countries. The most commonly used foreign currency is either dollar or euro, depending on the geographic location of the country and its trade linkages. We document heterogeneous shares of wealth denominated in foreign currency for households with different levels of income. We then analyze the redistributive effects of a nominal exchange rate devaluation on the liquid and non-liquid wealth.

What is the Impact of Food Stamps on Prices and Products Variety? The Importance of the Supply Response

Xavier Jaravel
London School of Economics


This paper investigates the effect of expanding food stamp enrollment on prices and product
variety over the long-run (several years). Comparing U.S. states during a period when policies
generated state-specific variation in the take-up rate for food stamps, I find that food stamp
eligible households experienced lower inflation in states with a larger increase in take-up (and
hence with higher demand from the eligible population). Falsification tests support a causal
interpretation: the relationship between inflation and changes in take-up is driven specifically by
food products with strong local brands and there is no such pattern when considering inflation
for ineligible households across the income distribution. Consistent with the view that a larger
market size induces entry and more competition, I nd sizable increases in product variety as
well as declines in retailer margins in states with a higher increase in take-up. These results show
that by changing demand across the product space, government transfers affect the incentives of
suppliers to enter and compete in different markets, which matters for the cost-benefit analysis
of these transfers through changes in prices and product variety.

The Geographic Spread of a Large Devaluation

Javier Cravino
University of Michigan
Andrei Levchenko
University of Michigan


Cravino and Levchenko (2017) establish that the 1994 Mexican peso devaluation raised the prices of consumption baskets of low-income households substantially more than the prices of the consumption baskets of high-income households. In this paper, we explore this result further by focusing on the regional and rural-urban variation in how much prices of consumption baskets changed following the devaluation. Changes in prices of consumption baskets can differ across regions because consumers in different regions consume different goods, and/or because same goods experience different price changes. We decompose the variation across regions in the post-devaluation price index changes into these components.
Jing Zhang
Federal Reserve Bank of Chicago
Alberto Cavallo
Massachusetts Institute of Technology
Jessie Handbury
University of Pennsylvania
Colin Hottman
Federal Reserve Board
JEL Classifications
  • E3 - Prices, Business Fluctuations, and Cycles
  • F3 - International Finance