Business Cycle Fluctuations and the Distribution of Consumption

40 Pages Posted: 23 Jan 2015

See all articles by Giacomo De Giorgi

Giacomo De Giorgi

University College London; NBER; Federal Reserve Banks - Federal Reserve Bank of New York

Luca Gambetti

Universitat Autonoma de Barcelona

Multiple version iconThere are 2 versions of this paper

Date Written: December 2014

Abstract

This paper sheds new light on the interactions between business cycles and the consumption distribution. We use CEX consumption data and a factor model to characterize the cyclical dynamics of the consumption distribution. We first establish that our approach is able to closely match business cycle fluctuations of consumption from the National Account. We then study the responses of the consumption distribution to TFP shocks and economic policy uncertainty shocks. Importantly, we find that the responses of the right tail of the consumption distribution, mostly comprising higher educated individuals, to shocks that drive cyclical fluctuations are larger and quicker than in other parts of the distribution. We note that the cost of business cycle fluctuations is larger than the one found using aggregate consumption, and that the shocks we analyze reduce consumption inequality on impact.

Keywords: consumption, inequality

JEL Classification: C3, D12, E21, E63

Suggested Citation

De Giorgi, Giacomo and Gambetti, Luca, Business Cycle Fluctuations and the Distribution of Consumption (December 2014). CEPR Discussion Paper No. DP10319. Available at SSRN: https://ssrn.com/abstract=2554394

Giacomo De Giorgi (Contact Author)

University College London ( email )

Gower Street
London
United Kingdom

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Luca Gambetti

Universitat Autonoma de Barcelona ( email )

Plaça Cívica
Cerdañola del Valles
Barcelona, Barcelona 08193
Spain

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