The COVID-19 pandemic and the consumption of nondurables and services

Nikolaos Charalampidis and Justine Guillochon

Applied Economics Letters, 2022, vol. 29, issue 12, 1084-1095

Abstract: Contrary to the Great and other past US Recessions, the reduction in services consumption exceeds the decline in nondurables consumption during the COVID-19 pandemic. We study the drivers of this unprecedented phenomenon through the lens of an estimated multi-sector Dynamic Stochastic General Equilibrium (DSGE) model that distinguishes between nondurables and services sectors. We find that economic uncertainty is once again important, but it does not generate sectoral heterogeneity. Demand-side factors reallocating consumption across sectors and proxying for voluntary and regulatory social distancing measures, as well as the lack of wage adjustments in services despite plummeting employment, became influential during the pandemic.

Date: 2022
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DOI: 10.1080/13504851.2021.1908515

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