Business Cycle Fluctuations and the Distribution of Consumption

39 Pages Posted: 18 Aug 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: 2015-03-01

Abstract

This paper sheds new light on the interactions between business cycles and the consumption distribution. We use Consumer Expenditure Survey 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 total factor productivity shocks and economic policy uncertainty shocks. Importantly, we find that the responses of the right tail of the consumption distribution, mostly comprising more highly 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 that found using aggregate consumption and that the shocks we analyze reduce consumption inequality on impact.

Keywords: consumption, inequality, cost of business cycles, heterogeneity, aggregate shocks, structural factor model, FAVAR

JEL Classification: C3, D12, E21, E63

Suggested Citation

De Giorgi, Giacomo and Gambetti, Luca, Business Cycle Fluctuations and the Distribution of Consumption (2015-03-01). FRB of New York Staff Report No. 716, Available at SSRN: https://ssrn.com/abstract=2646039 or http://dx.doi.org/10.2139/ssrn.2646039

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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