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.

Christos Makridis, Tao Wang, 03 June 2020

Aggregate consumption has seen an unprecedented drop as a consequence of COVID-19 and the resulting lockdowns. Rather than focus on ways that specific policies or the spread of the virus have altered consumption patterns during the pandemic, this column explores the impact of social networks. Combining card transaction data with indices of social connectedness from Facebook shows that a 10% increase of infections in socially connected counties is associated with a 0.64% decline in local consumption expenditures, suggesting that social networks can sharply amplify the effects of an underlying shock.

Asger Lau Andersen, Emil Toft Hansen, Niels Johannesen, Adam Sheridan, 15 May 2020

The COVID-19 pandemic has had drastic effects on consumer spending across the world. This column presents evidence based on bank account transaction data from Denmark showing that total card spending was reduced by 25% during the early phase of the crisis. The drop was mostly concentrated on goods and services whose supply is directly restricted by government interventions, suggesting a limited role for spillovers to non-restricted sectors through demand in the short term.

Dimitris K. Chronopoulos, Marcel Lukas, John O.S. Wilson, 06 May 2020

Since the first COVID-19 cases were reported in January 2020, the UK government has introduced successive public health measures, culminating in late March 2020 with enforced closures of non-essential businesses and social distancing. These measures are significantly affecting UK household incomes and expenditures. This column exploits a large anonymised transaction-level dataset covering Great Britain to examine real-time consumer spending responses to the COVID-19 pandemic and related public policy measures. While there are differences by age, gender, and income level, overall consumer spending declined as the government lockdown becames imminent and has continued to decline since.

John Muellbauer, 11 April 2020

The coronavirus pandemic has triggered unprecedented shocks to both supply and demand, raising important questions about the impact on US consumer spending. In the US, consumption comprised as much as 70% of GDP in 2019. Typically, consumption is less volatile than income. But as this column argues, it is now likely to fall even more than household income. One reason is that part of the negative shock originates in disruption to consumption itself. Another comes from the jump in income insecurity as reflected in an unprecedented rise in the unemployment rate. Other reasons include the fall in asset prices and a sharp contraction in credit availability. A plausible scenario from the analysis suggests that US real consumer spending in the second quarter of 2020 could fall by around 20%, if household labour income falls by 16%.

Martin Blomhoff Holm, Pascal Paul, Andreas Tischbirek, 31 March 2020

Empirical evaluations of monetary policy have traditionally focused on the responses of macroeconomic aggregates. Instead, this column uses detailed administrative data from Norway to uncover substantial heterogeneity in the effects of monetary policy at the household level. The authors find that not only low-liquidity households but also high-liquidity ones show strong responses. Interest rate changes faced by borrowers and savers feed into consumption, and indirect effects of monetary policy are sizable, but occur with a delay. While the results confirm several predictions of recent heterogeneous-agent New Keynesian models, they also provide new challenges.

Henrik Yde Andersen, Søren Leth-Petersen, 20 December 2019

House prices and aggregate spending move together, but little is known about the underlying mechanism linking the two. This column introduces a test to discriminate between the housing wealth effect hypothesis, which says that homeowners consider home value changes as windfalls, and the collateral effect hypothesis, which says that a home value increase generates additional collateral that can be borrowed against. Homeowner behaviour in response to home value rises when they are close to their collateral borrowing constraint, suggesting that the collateral effect is important for explaining the link between house prices and spending. 

Scott Baker, Lorenz Kueng, Leslie McGranahan, Brian T. Melzer, 30 January 2019

During and after the Global Crisis, economists and policymakers proposed a commitment to increase consumption taxes in the future as a way to shift consumption to the present. This column tests the impact of this unconventional fiscal policy using data on car sales. It finds that households respond dramatically to planned tax increases, but this depends on them having access to credit so they can bring forward their spending.

Daniel Hamermesh, Jeff Biddle, 26 January 2019

People combine goods and time in household production, and theory suggests that as their wage rates rise, they will substitute goods-intensive for time-intensive activities. However, it is not clear how activities that take essentially no, or minimal, amounts of spending, such as sleeping or watching TV, fit into the theory. This column uses data from time diaries for the US, France, and Germany to demonstrate that not all non-work time is the same, and different components of non-work time respond differently to changing incentives.

Jeehoon Han, Bruce Meyer, James Sullivan, 10 January 2019

Economic wellbeing depends on the consumption of not just goods and services, but also the consumption of time. This column looks at leisure and consumption together for the same families by imputing the amount of leisure families consume in the Consumer Expenditure Survey, and finds a negative relationship between consumption and leisure. Accounting for both leisure and consumption implies somewhat less inequality in society, and suggests that social welfare policies and the business cycle can alter the economic wellbeing of families by both altering resources consumed and through their effect on leisure.

Diane Coyle, 21 August 2018

Josephine Duh, Dean Spears, 16 July 2018

Although average wealth in India has risen in recent years, calorie consumption has paradoxically fallen. Josephine Duh and Dean Spears explain that Indians are eating less despite being richer because disease rates are slowly declining, meaning that nutrition from food is extracted more efficiently.

Sumit Agarwal, J. Bradford Jensen, Ferdinando Monte, 18 July 2018

Although the internet has greatly reduced the travel frictions that consumers face, for many goods and services, consumers’ willingness to travel is still a key factor influencing firms’ decisions. This column explores consumer mobility and purchases using credit card transaction data. Predictably, consumers travel further for more durable and less frequently consumed goods. The results suggest that consumer mobility may be relevant at the individual level and in the formation of local equilibrium outcomes.

Thomas Cooley, Espen Henriksen, 11 June 2018

Demographic change represents an important contributing factor to the slowdown of long-run growth. This column explores some of the channels through which this occurs and how the effects of demographic change can be mitigated. Policies that target consumption-saving choices, labour-leisure choices, and human capital accumulation over the lifecycle are likely to be most effective.

Arna Olafsson, Michaela Pagel, 07 June 2018

A large literature analyses whether individuals save adequately for retirement and plan properly. This column uses a detailed panel of individual spending, income, account balances, and credit limits from a personal finance management software provider to investigate how expenditures, liquid savings, and consumer debt change around retirement. It finds that, upon retirement, individuals reduce their spending in both work-related and leisure categories. In addition, individuals reduce their consumer debt and increase their liquid savings, which is inconsistent with existing models of insufficient planning. 

Michalis Haliassos, Vimal Balasubramaniam, 01 June 2018

The Third CEPR European Workshop on Household Finance took place on 11 and 12 May in London. This column describes the papers that were presented at the workshop.

Ross Warwick, 29 May 2018

Similarly to advanced economies, developing countries often subsidise VAT rates on food and other basic goods and services. Ross Warwick discusses his research at the IFS, which suggests these subsidies may in fact disdvantage the poorest, because the subsidised goods and services are consumed disproportionately more by richer households.

Rachel Griffith, 02 May 2018

The UK recently introduced a 'soda tax' - a tax on the consumption of drinks with added sugar. Rachel Griffith discusses the effectiveness of such measures in reducing the consumption of sugar among children. This video was recorded at the 2018 RES Conference.

Jonas Kolsrud, Camille Landais, Johannes Spinnewijn, 04 April 2018

Household consumption is central to economic and welfare analysis, but it remains difficult to fully measure at an empirical level. Using evidence from Sweden, this column argues the case for using registry-based data to estimate consumption expenditures, particularly at the tails of income distributions. It also argues that previous suggestions that recent rises in income inequality haven’t been matched by rises in consumption inequality may be misguided.

Gauti Eggertsson, Ragnar Juelsrud, Ella Getz Wold, 31 January 2018

Economists disagree on the macroeconomic role of negative interest rates. This column describes how, due to an apparent zero lower bound on deposit rates, negative policy rates have so far had very limited impact on the deposit rates faced by households and firms, and this lower bound on the deposit rate seems to be causing a decline in pass-through to lending rates as well. Negative interest rates thus appear ineffective in stimulating aggregate demand.

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