Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5066765 | European Economic Review | 2015 | 16 Pages |
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.
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Authors
Rodolfo G. Campos, Iliana Reggio,