MACRO UNCERTAINTY, UNEMPLOYMENT RISK, AND CONSUMPTION DYNAMICS

Joonseok Oh and Anna Rogantini Picco

International Economic Review, 2025, vol. 66, issue 1, 287-312

Abstract: Households' income heterogeneity is important to explain consumption dynamics in response to aggregate macro uncertainty: an increase in uncertainty generates a consumption drop that is stronger for lower‐income households. At the same time, labor markets are strongly responsive to macro uncertainty. A heterogeneous‐agent New Keynesian model with search‐and‐matching frictions in the labor market can account for these empirical findings. The mechanism at play is a feedback loop between lower‐income households who, being subject to higher unemployment risk, contract consumption more in response to heightened uncertainty, and firms that post fewer vacancies following a drop in demand.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/iere.12730

Related works:
Working Paper: Macro uncertainty, unemployment risk, and consumption dynamics (2024)
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:wly:iecrev:v:66:y:2025:i:1:p:287-312

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0020-6598

Access Statistics for this article

International Economic Review is currently edited by Michael O'Riordan and Dirk Krueger

More articles in International Economic Review from Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association 160 McNeil Building, 3718 Locust Walk, Philadelphia, PA 19104-6297. Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().