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The Rise and Fall of Consumption in the '00s. A Tangled Tale

63 Pages Posted: 13 Aug 2015 Last revised: 20 Dec 2017

Yuliya S. Demyanyk

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Dmytro Hryshko

University of Alberta

María José Luengo‐Prado

Federal Reserve Banks - Federal Reserve Bank of Boston

Bent E. Sørensen

University of Houston - Department of Economics; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: December 17, 2017

Abstract

U.S. consumption has gone through steep ups and downs since 2000. We quantify the statistical impact of income, unemployment, house prices, credit scores, debt, financial assets, expectations, foreclosures, and inequality on county-level consumption growth for four subperiods: the "dot-com recession" (2001--2003), the "subprime boom" (2004--2006), the Great Recession (2007--2009), and the "tepid recovery" (2010--2012). Consumption growth cannot be explained by a few factors; rather, it depends on a large number of variables whose explanatory power varies by subperiod. Growth of income, growth of housing wealth, and fluctuations in unemployment are the most important determinants of consumption, significantly so in all subperiods, while fluctuations in financial assets and expectations are important only during some subperiods. Lagged variables, such as the share of subprime borrowers, are significant but less important.

Keywords: consumption growth, wealth effects, income inequality, debt overhang, consumer credit, consumer expectations, foreclosures, cash-out refi nancing, dot-com recession, subprime boom, Great Recession, tepid recovery

JEL Classification: E21, E24

Suggested Citation

Demyanyk, Yuliya S. and Hryshko, Dmytro and Luengo‐Prado, María José and Sørensen, Bent E., The Rise and Fall of Consumption in the '00s. A Tangled Tale (December 17, 2017). FRB of Cleveland Working Paper No. 1507. Available at SSRN: https://ssrn.com/abstract=2643129

Yuliya S. Demyanyk (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

Research Department
East 6th & Superior
Cleveland, OH 44101-1387
United States

HOME PAGE: http://www.clevelandfed.org/Research/Economists/Demyanyk

Dmytro Hryshko

University of Alberta ( email )

Edmonton, Alberta T6G 2R3
Canada

Maria Jose Luengo-Prado

Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

Bent E. Sorensen

University of Houston - Department of Economics ( email )

204 McElhinney Hall
Houston, TX 77204-5882
United States
713-743-3841 (Phone)
713-743-3798 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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