"Trading Down and the Business Cycle", with Nir Jaimovich and Sergio Rebelo (Updated February 2017)
Abstract: We 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. So, when households trade down, labor demand falls, increasing the severity of recessions. We find that the trading-down phenomenon accounts for a substantial fraction of the fall in U.S. employment in the recent recession. We 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.
"Population Aging and the Transmission of Monetary Policy to Consumption" [online appendix], (Updated April 2016)
Abstract: This paper assesses the effects of demographic changes on the transmission of monetary policy to consumption. First, I provide empirical estimates of age-specific consumption elasticities to interest rate shocks. The consumption of younger people is significantly more responsive to interest rate shocks than older people, and explains most of the aggregate response. The consumption responses are driven by homeowners who refinance or enter new loans after interest rate declines. Younger people are both more likely to adjust their loans and have higher short-term liquidity constraints. Second, I develop a life-cycle model that explains these empirical facts. The model features fixed-rate mortgages, with fixed costs to refinance and enter into a new loan. Moreover, younger people are more likely to be short-term liquidity constrained. As a result, there is a correlation between those who adjust their loans when rates decline and short-term liquidity constraints, which can generate a large consumption response in the aggregate. Quantitatively, the loan adjustment channel accounts for a sizable share of the difference in consumption elasticities between young and old individuals. Under an older demographic structure, aggregate consumption will response less to monetary policy shocks.
"The Elasticity of Substitution between Time and Market Goods: Evidence from the Great Recession", with Aviv Nevo. See summary in the NBER digest (Updated January 2017)
Abstract: We document a change in household shopping behavior during the Great Recession. Households purchased more on sale, larger sizes and generic products, increased coupon usage, and shopping at discount stores. We estimate that the returns to these shopping activities declined during the recession and therefore this behavior implies a significant decrease in households’ opportunity cost of time. Using the estimated cost of time and time use data, we estimate a high elasticity of substitution between market expenditure and time spent on non-market work. We find that households smooth a sizable fraction of consumption by varying their time allocation during recessions.
Abstract: We introduce a new measure of social connectedness between U.S. county pairs, as well as between U.S. counties and foreign countries. Our measure, which we call the Social Connectedness Index (SCI), is based on the number of friendship links on Facebook, the world’s largest online social network. Within the U.S., social connectedness is strongly decreasing in geographic distance between counties. The population of counties with more geographically-dispersed social networks is richer, more educated, and has higher life expectancy. Region-pairs that are more socially connected have higher trade flows, even after controlling for geographic distance and the similarity of regions along other demographic and socioeconomic measures. Higher social connectedness is also associated with more cross-county migration and patent citations. Social connectedness between U.S. counties and foreign countries is correlated with past migration patterns, with social connectedness decaying in the time since the primary migration wave from that country. Trade with foreign countries is also strongly related to the social connectedness with those countries. These results suggest that the SCI captures an important role of social networks in facilitating economic and social interactions. Our findings highlight the potential for the SCI to mitigate the measurement challenges that pervade empirical literatures that study the role of social interactions across the social sciences.
On the Cyclical of Gross Margins, with Eric Anderson and Sergio Rebelo
Quality of Consumption and the Skill Premium, with Nir Jaimovich, Ben Miao and Sergio Rebelo
Wealth in the Pantry: Implications of Consumer Inventory Stockpiling for Household Savings