Consumption in the shadow of unemployment

Rodolfo Campos and Iliana Reggio

No 1411, Working Papers from Banco de España

Abstract: By how much do employed households reduce their consumption when the aggregate unemployment rate rises? In Spain during the Great Recession a 1 percentage point increase in the unemployment rate was related to a strong drop in household consumption of more than 0.7% per equivalent adult. This reduction is the response of forward-looking agents 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 indeed a reduction in quantities, and not a switch to cheaper alternatives.

Keywords: consumption; unemployment; income; life-cycle models; Spain; Great Recession (search for similar items in EconPapers)
JEL-codes: D12 D84 E21 E24 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2014-06
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Consumption in the shadow of unemployment (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:1411

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