Article ID Journal Published Year Pages File Type
5066765 European Economic Review 2015 16 Pages PDF
Abstract
By how much do employed households reduce their consumption when the aggregate unemployment rate rises? In Spain during the Great Recession a one point increase in the unemployment rate was related to a strong reduction in household consumption of more than 0.7% per equivalent adult. This reduction is consistent with forward-looking agents responding to downward revisions of their expectations on future income growth rates: the shadow of unemployment. Using consumption panel data that include information on physical quantities we show that the drop in consumption expenditure was truly a reduction in quantities, and not a switch to cheaper alternatives.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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