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Asymmetric Responses of Consumer Spending to Energy Prices: A Threshold VAR Approach

Edward Knotek () and Saeed Zaman

No 202017, Working Papers from Federal Reserve Bank of Cleveland

Abstract: We document asymmetric responses of consumer spending to energy price shocks: Using a multiple-regime threshold vector autoregressive model estimated with Bayesian methods on US data, we find that positive energy price shocks have a larger negative effect on consumption compared with the increase in consumption in response to negative energy price shocks. For large shocks, the cumulative consumption responses are three to five times larger for positive than for negative shocks. Digging into disaggregated spending, we find that the estimated asymmetric responses are strongest for durable goods, but asymmetries are also present in the responses of nondurables and services.

Keywords: consumption; nonlinear structural impulse response; multivariate threshold models; asymmetry; energy prices (search for similar items in EconPapers)
JEL-codes: C11 Q43 C32 E21 (search for similar items in EconPapers)
Pages: 46
Date: 2020-06-16, Revised 2020-06-16
New Economics Papers: this item is included in nep-ene, nep-mac and nep-ore
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DOI: 10.26509/frbc-wp-202017

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Handle: RePEc:fip:fedcwq:88169