Working Paper: CEPR ID: DP12522
Authors: Yuliya Demyanyk; Dmytro Hryshko; Maria Luengo Prado; Bent E. Sørensen
Abstract: U.S. consumption has gone through steep ups and downs since 2000. We quantify the statistical impact of income, unemployment, house prices, credit scores, debt, financial assets, expectations, foreclosures, and inequality on county-level consumption growth for four subperiods: the "dot-com recession'' (2001--2003), the "subprime boom'' (2004--2006), the Great Recession (2007--2009), and the "tepid recovery'' (2010--2012). Consumption growth cannot be explained by a few factors; rather, it depends on a large number of variables whose explanatory power varies by subperiod. Growth of income, growth of housing wealth, and fluctuations in unemployment are the most important determinants of consumption, significantly so in all subperiods, while fluctuations in financial assets and expectations are important only during some subperiods. Lagged variables, such as the share of subprime borrowers, are significant but less important.
Keywords: Consumption; Economic Fluctuations; Income; Housing Wealth; Unemployment
JEL Codes: E21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Income growth (O49) | Consumption growth (E20) |
| Housing wealth (G51) | Consumption growth (E20) |
| Unemployment fluctuations (J64) | Consumption growth (E20) |
| Fluctuations in financial assets (G19) | Consumption growth (E20) |
| Consumer expectations (D12) | Consumption growth (E20) |
| Share of subprime borrowers (G51) | Consumption growth (E20) |