Cyclical drivers of euro area consumption: What can we learn from durable goods?
André Casalis () and
Journal of International Money and Finance, 2022, vol. 120, issue C
We study the cyclical dynamics of consumption in the euro area (EA) and the large EA countries by distinguishing durable from nondurable expenditures. We adopt a theoretical partial equilibrium framework to justify the identification strategy of our empirical model, a time-varying parameter structural vector autoregression (TVP-SVAR). Following the main insight from the theoretical model, that liquidity constraints induce important interactions between durables and nondurables, we distinguish durable-specific demand and supply shocks, while taking into account monetary and credit conditions. Our main findings are: (i) durables react faster and more strongly than nondurables after monetary shocks in the euro area and in the largest EA countries, a confirmation of an outcome commonly reported for the US; (ii) there is a large degree of cross-country heterogeneity in how different factors (including durable-specific ones) explain consumption; (iii) the strength of spillovers from durable to nondurable consumption, as predicted by theory, is empirically correlated with how much households across countries are likely to be liquidity constrained.
Keywords: Consumption; Durable goods; SVARs; Sign restrictions (search for similar items in EconPapers)
JEL-codes: C11 C32 D11 E21 E32 (search for similar items in EconPapers)
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Working Paper: Cyclical drivers of euro area consumption: what can we learn from durable goods? (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:120:y:2022:i:c:s0261560620301972
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