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Trading down and the business cycle

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

No 2015-5, FRB Atlanta CQER Working Paper from Federal Reserve Bank of Atlanta

Abstract: The authors document two facts: First, during recessions consumers trade down in the quality of the goods and services they consume. Second, the production of low-quality goods is less labor intensive than that of high-quality goods. Therefore, when households trade down, labor demand falls, increasing the severity of recessions. The authors find that the trading-down phenomenon accounts for a substantial fraction of the fall in U.S. employment in the recent recession. They study two business cycle models that embed quality choice and find that the presence of quality choice magnifies the response of these economies to real and monetary shocks.

Keywords: recessions; quality choice; business cycles (search for similar items in EconPapers)
JEL-codes: E2 E3 E4 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2015-11-01
New Economics Papers: this item is included in nep-dge and nep-mac
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Related works:
Journal Article: Trading down and the business cycle (2019) 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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