Alan Auerbach, Yuriy Gorodnichenko, Peter B. McCrory, Daniel Murphy, 23 December 2021

The Covid-19 pandemic prompted an unprecedented fiscal stimulus by many governments to counter the economic recession. This column uses high-frequency data on government spending, lockdown restrictions, and economic indicators in the US to assess the effectiveness of fiscal policy. It shows that government spending increased employment, but only in cities not subject to strict stay-at-home restrictions. It also shows that consumer spending shifted strongly toward durable goods during the pandemic. Well-targeted fiscal measures will be crucial in the case of another recessionary outbreak, especially transfers to firms on the brink of exit. 

Rüdiger Bachmann, Benjamin Born, Olga Goldfayn-Frank, Georgi Kocharkov, Ralph Luetticke, Michael Weber, 20 November 2021

Unconventional fiscal policy acts as a potential stimulus because higher expected future prices should incentivise spending today. This column shows that the temporary reduction in Germany’s value added tax in the second half of 2020 led to a 36% increase in durable spending for individuals with a high perceived price pass-through, along with an increase in semi- and non-durable spending. In total, aggregate consumption spending rose by about €34 billion. Unlike unconventional monetary policy, which often relies on consumer sophistication, the stabilisation success of the temporary VAT cut was partly related to its simplicity.

Ulrike Malmendier, 29 October 2021

When we live through a financial crisis, many of us think differently about money afterwards. Neuroscientists can show that the experience changes the physical structure of our brains, and Ulrike Malmendier tells Tim Phillips how this should also change the way that economists think about preferences for risk.

Read more about the research presented and download the free Discussion Paper

Malmendier, U. 2021. 'Experience Effects in Finance: Foundations, Applications, and Future Directions'.

Takahiro Hattori, Norihiro Komura, Takashi Unayama, 28 September 2021

During the rapid spread of COVID-19 in Japan, the Japanese government decided to provide a Special Cash Payment of 100,000 yen per person to all residents as a part of its “Emergency Economic Measures to Cope with COVID-19”. This column uses publicly available survey data to estimate the marginal propensity to consume from the cash transfer in order to assess the impact of the policy. It finds that the payments increased non-negligible consumption mainly due to their size, but the marginal propensity to consume, at around 10 %, is no different from non-pandemic periods. 

Valerio Ercolani, Elisa Guglielminetti, Concetta Rondinelli, 26 June 2021

The Covid-19 pandemic has seen a surge in household savings across the world. This column exploits information from the Bank of Italy’s Special Survey of Italian Households to break down recent saving patterns in Italy. It finds an increase in precautionary savings associated with factors such as higher job uncertainty and fears of a protracted pandemic. Additionally, it suggests that a lasting precautionary attitude could slow the decumulation of piled up savings, even as the pandemic slows down.

Dimitris Christelis, Dimitris Georgarakos, Tullio Jappelli, Geoff Kenny, 08 June 2021

The coronavirus pandemic has generated a complex economic shock that has affected households across the euro area very differently. This column uses survey data from around 10,000 households across Europe to reveal substantial divergences in the pandemic-induced financial concerns of households across population subgroups and countries. Financial concerns are significantly greater for younger, female, and low-income individuals in countries where the first wave of Covid-19 was more severe.

Asger Lau Andersen, Amalie Jensen, Niels Johannesen, Claus Thustrup Kreiner, Søren Leth-Petersen, Adam Sheridan, 08 June 2021

To what extent do households self-insure to avoid cutting back on consumption following income losses, and which self-insurance channels are most important? This column reviews evidence on household responses to job loss using comprehensive high-frequency data from multiple sources in Denmark. Over the two years following job loss, 30% of the decline in disposable income is accounted for by a drop in household spending, leaving a gap of 70% that reflects the effects of self-insurance. This gap is filled by lower accumulation of liquid assets (~50%), increases in private transfers and other inflows (~10%), higher spousal labour supply (~5%), and lower net debt repayments (~5%). Mortgage borrowing and refinancing play only a small role.

Ulrike Malmendier, Leslie Sheng Shen, 15 March 2021

Economic crises have prolonged consequences on consumer behaviour, beyond effects captured by standard economic variables. Standard life-cycle consumption channels often fail to explain these lasting effects. This column argues that economic downturns ‘scar’ consumers in the long run. Consumers who have lived through times of high unemployment remain pessimistic about the future financial situation, spend less in future years, and accumulate more savings, controlling for income, wealth, and employment. These results suggest a novel micro-foundation of fluctuations in aggregate demand and imply long-run effects of macroeconomic shocks. 

Ioana Duca-Radu, Geoff Kenny, Andreas Reuter, 09 February 2021

When interest rates cannot go any lower, the economy can be stabilised if consumers expect the rate of inflation to increase. Yet, the evidence for this stabilising effect has been very mixed. This column presents new evidence from a monthly survey of over 25,000 individual consumers across the euro area, showing that consumers are indeed more ready to spend if they expect inflation to be higher in the future. While generalised in the population, the stabilising effect is stronger when nominal interest rates ­are constrained at the lower bound.

Saskia ter Ellen, Vegard H. Larsen, Leif Anders Thorsrud, 08 December 2020

Though the transmission channels of central bank communication to financial institutions are well researched, less is known about how they relay information to the public at large. This column shows how central bank communication indirectly reaches the general public by affecting news media coverage on topics of particular relevance for monetary policy decisions. The findings suggest that the media, and how it acts as an information intermediary, can have a sizeable effect on economic outcomes.

Martin Eichenbaum, Miguel Godinho de Matos, Francisco Lima, Sérgio Rebelo, Mathias Trabandt, 14 November 2020

A central question in economics is how people respond to risk – specifically, how they respond to low-probability events. This column uses the COVID-19 pandemic as a natural experiment to answer this question. Studying the consumption behaviour of Portuguese public sector workers, whose income was likely unaffected by the crisis, they find that older workers reduced their consumption of high-contact goods by much more than younger workers.  As the likelihood for dying from COVID-19 is increasing in age, these results suggest that workers’ responses are commensurate with the risk they face.

Laura Straeter, Jessica Exton, 13 November 2020

Sharing is an ancient, universal practice in which people grant others temporary access to their possessions. This column questions whether a ‘sharing economy’ would be sustainable in practice. Online experiments involving over 400 adults in the US revealed that products shared with other people are disposed of earlier, irrespective of the frequency of use. Though consumer-to-consumer sharing has immediate environmental benefits through, for example, decreases in the use of raw production materials, its long-term benefits appear limited.   

Martin O'Connell, Áureo De Paula, Kate Smith, 04 November 2020

The first wave of COVID-19 infections led to widespread stories of shortages in grocery stores as consumers stocked up in anticipation of lockdowns. This column summarises findings, based on household scanner data from the UK, on the extent of consumer hoarding during the first phase of the pandemic. It shows that there were large spikes in demand for storable goods, and this was mainly driven by many households purchasing these goods more frequently. 

Thiess Buettner, Boryana Madzharova, 27 October 2020

Facing the economic consequences of the Covid-19 pandemic, governments all over the world are considering providing a fiscal stimulus. A potentially powerful instrument to do so is a broad-based consumption tax such as VAT. This column argues that changes in VAT may have some effect in stimulating spending on certain consumer durable goods such as household appliances. However, these effects may be heterogenous across different product types and the timing and perceived credibility of the announcements are also important factors for policymakers to consider.

Marit Hinnosaar, Elaine Liu, 18 October 2020

Alcohol is one of the leading killers among substances, but little is known how various factors interact to affect individual alcohol consumption. This column explores how much the environment –, including supply conditions, alcohol regulation, taxes, and peers – drives alcohol consumption, by analysing changes in alcohol purchases when US consumers move from one state to another. The current environment explains about two-thirds of the differences in alcohol purchases, with consumers’ alcohol purchases converging sharply toward the average purchase level in their destination state right after moving.

David Argente, Chang-Tai Hsieh, Munseob Lee, 13 September 2020

Cross-country price indexes are an essential tool for comparing living standards in different countries. But those indexes are constructed from data that does not always account for heterogeneity in shopping behaviour, the uneven quality of products, and variety availability. This column compares barcode-level data on prices and quantities for consumer packaged goods in the US and Mexico, and finds that Mexican real consumption relative to the US is larger than previously estimated. It highlights the importance of addressing sampling, quality, and variety biases in international price comparisons.

Gabriel Felbermayr, Jasmin Gröschl, Inga Heiland, 06 September 2020

Rising anti-European sentiments over the past decade have prompted economists to assess the economic consequences of undoing Europe. Focusing on trade, this column uses a state-of-the-art sector-level gravity model to estimate the cost savings achieved through each individual step of integration and then simulate the economic consequences of reversing those steps. The results suggest that if all steps were to be reversed, EU manufacturing exports would drop by 26% and services exports by 12%. A complete breakdown of the EU would also generate significant real consumption losses for all EU members, with small open economies and younger and poorer EU members from central and Eastern Europe having the most to lose.

Thorsten Beck, Mohammad Hoseini, 28 August 2020

The high degree of informality in developing countries means most low-income workers have not been able to work from home during the Covid crisis or benefit from employment protection. Despite limited fiscal space and limited access to international financial markets, many developing country governments have implemented support programmes for households and firms. This column assesses the impact of an emergency household loan programme in Iran on consumption. It finds that the loans are positively related with higher consumption of non-durable and semi-durable goods, with no significant effect on the consumption of durables or asset purchases, suggesting that the emergency loans were predominantly used for their intended purpose.

Xavier Jaravel, Martin O'Connell, 26 July 2020

The coronavirus pandemic has resulted in large shocks to both demand and supply, which conceivably could result in deflation, disinflation, or higher inflation. This column summarises findings, based on real-time scanner data in UK, on inflation among fast-moving consumer goods during the pandemic. It shows that at the beginning of lockdown there was a sharp upturn in inflation and a significant fall in product variety.

Scott Baker, R.A. Farrokhnia, Michaela Pagel, Steffen Meyer, Constantine Yannelis, 17 June 2020

After a steep decline in spending, US households responded rapidly to the receipt of COVID-19 stimulus payments. Still, relative to similar programs in 2001 and 2008, spending on durables decreased. This column uses high-frequency transaction data to analyse consumption responses to shelter-in-place orders and government-issued stimulus checks across income levels and locations. It shows that larger increases in spending on food and payments – from credit cards to rents and mortgages – reflect a short-term debt overhang and suggest that direct payments failed to stimulate aggregate consumption.

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