Working Paper: CEPR ID: DP13687
Authors: Claudio Michelacci; Luigi Paciello; Andrea Pozzi
Abstract: About half of the aggregate change in US non-durable consumption expenditure is due to changes in the products entering households’ consumption basket (the extensive margin). Changes in the basket are driven by fluctuations in the rate at which households add new products; removals fluctuate little. These patterns are largely explained by the fact that households respond to income increases by adopting products already available on the market in their consumption basket. Fluctuations in household adoption cause a bias in the measurement of inflation, drive the aggregate demand for new products, and amplify the effects of aggregate shocks.
Keywords: Consumption; Inflation; Households; Income Shocks
JEL Codes: E21; E31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| income shocks (J65) | adoption of new products (O36) |
| adoption of new products (O36) | nondurable consumption expenditure (E20) |
| household adoption (J12) | inflation measurement bias (E31) |
| adoption expenditure (J13) | effects of fiscal transfers (H31) |
| income shocks (J65) | nondurable consumption expenditure (E20) |