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Trading down and the business cycle

Nir Jaimovich, Sergio Rebelo () and Arlene Wong ()

Journal of Monetary Economics, 2019, vol. 102, issue C, 96-121

Abstract: We document two facts. First, during the Great Recession, consumers traded down in the quality of the goods and services they consumed. Second, the production of low-quality goods is less labor intensive than that of high-quality goods. When households traded down, labor demand fell, increasing the recession’s severity. We find that the trading-down phenomenon accounts for a substantial fraction of the decline in U.S. employment in the recent recession. We show that embedding quality choice in a business-cycle model improves the model’s amplification and comovement properties.

Keywords: Recessions; Quality choice; Business cycles (search for similar items in EconPapers)
JEL-codes: E2 E3 E4 (search for similar items in EconPapers)
Date: 2019
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Related works:
Working Paper: Trading Down and the Business Cycle (2015) Downloads
Working Paper: Trading down and the business cycle (2015) Downloads
Working Paper: Trading Down and the Business Cycle (2015) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:102:y:2019:i:c:p:96-121

DOI: 10.1016/j.jmoneco.2019.01.026

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