Consumption in the shadow of unemployment

Rodolfo Campos and Iliana Reggio

European Economic Review, 2015, vol. 78, issue C, 39-54

Abstract: By how much do employed households reduce their consumption when the aggregate unemployment rate rises? In Spain during the Great Recession a one point increase in the unemployment rate was related to a strong reduction in household consumption of more than 0.7% per equivalent adult. This reduction is consistent with forward-looking agents responding to downward revisions of their expectations on future income growth rates: the shadow of unemployment. Using consumption panel data that include information on physical quantities we show that the drop in consumption expenditure was truly a reduction in quantities, and not a switch to cheaper alternatives.

Keywords: Consumption; Unemployment; Life-cycle models; Spain; Great Recession (search for similar items in EconPapers)
JEL-codes: D12 D84 E21 E24 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

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Working Paper: Consumption in the shadow of unemployment (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:78:y:2015:i:c:p:39-54

DOI: 10.1016/j.euroecorev.2015.04.006

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