Working Paper: NBER ID: w17688
Authors: Mariacristina De Nardi; Eric French; David Benson
Abstract: We document some key facts about aggregate consumption and its subcomponents over time. We then document the behavior of some important determinants of consumption, such as consumers' expectations about their future income, and changes in the consumers' wealth positions. Finally, we use a simple permanent income model to show that the observed drop in consumption during the Great Recession can be explained by the observed drops in wealth and income expectations.
Keywords: Consumption; Great Recession; Income Expectations; Wealth Effects
JEL Codes: E10; E21; E31; H31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Declines in wealth and income expectations (E21) | Drop in consumption (D12) |
| Great Recession (G01) | Decline in aggregate consumption (E21) |
| Expected nominal income growth decline (O49) | Drop in consumption (D12) |
| Negative wealth effect (E21) | Drop in consumption (D12) |
| Decreased stock market valuations and housing prices (G19) | Negative wealth effect (E21) |
| Drop in consumption (D12) | Weak recovery path of consumption (E21) |