(S)Cars and the Great Recession

Morten Ravn, Orazio Attanasio, Kieran Larkin and Mario Padula

No 15361, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: US households' consumption and car purchases collapsed during the Great Recession for reasons that are still poorly understood. In this paper we use the Consumer Expenditure Survey to derive cohort and business cycle decompositions of consumption prfio les. When decomposing the car expenditure data into its extensive and intensive margins, we find that the intensive margin contracted sharply in the Great Recession, a fi nding in stark contrast to conventional wisdom and to the experience of prior recessions. We interpret the evidence through the prism of a very rich life-cycle model where individuals are subject to idiosyncratic uninsurable income shocks, aggregate income shocks, wealth shocks, and credit shocks. We show that, because of their salience and the transaction costs, cars are particularly sensitive to changes in the perception of future expected income and its variability. We find that on top of a large aggregate income shock, life-cycle income pro file shocks and wealth shocks are important determinants of consumption choices during the Great Recession.

Keywords: Consumption; Durables adjustment; The great recession (search for similar items in EconPapers)
JEL-codes: D12 D14 E21 E32 (search for similar items in EconPapers)
Date: 2020-10
New Economics Papers: this item is included in nep-dge and nep-mac
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Related works:
Working Paper: (S)Cars and the Great Recession (2020)
Working Paper: (S)Cars and the Great Recession (2015)
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