Consumption Heterogeneity over the Business Cycle

Luca Gambetti and Giacomo De Giorgi

No 646, Working Papers from Barcelona School of Economics

Abstract: We study consumption heterogeneity over the business cycle. Using household panel data from 1984 to 2010 in the US we find that the welfare cost of the business cycle is non-negligible, once agents heterogeneity is taken into account, and sums to about 1% of yearly consumption. This is due to the structure of comovements between the different parts of the consumption distribution, in particular the tails are highly volatile and negatively related to each other. We also find that business cycle fluctuations originating from exogenous financial shocks only hit the top end of the consumption distribution and therefore reduce consumption inequality.

Keywords: heterogeneity; Structural factor model; consumption; aggregate shocks; FAVAR (search for similar items in EconPapers)
JEL-codes: C3 D12 E21 E63 (search for similar items in EconPapers)
Date: 2015-09
New Economics Papers: this item is included in nep-bec and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Consumption Heterogenity Over the Business Cycle (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:646

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