Trading Down and the Business Cycle

Sergio Rebelo (), Nir Jaimovich and Arlene Wong

No 10807, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We 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.

Keywords: Business cycle; Quality choice; Recessions (search for similar items in EconPapers)
JEL-codes: E2 E3 E4 (search for similar items in EconPapers)
Date: 2015-09
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

Downloads: (external link)
https://cepr.org/publications/DP10807 (application/pdf)

Related works:
Journal Article: Trading down and the business cycle (2019)
Working Paper: Trading down and the business cycle (2015)
Working Paper: Trading Down and the Business Cycle (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:10807

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP10807

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().