Consumption Response to Temporary Price Shock: Evidence from Singapore's Annual Sale Event

42 Pages Posted: 14 Sep 2017 Last revised: 7 Oct 2017

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Kang Mo Koo

Deakin University-Department of Finance

Wenlan Qian

National University of Singapore - NUS Business School

Date Written: September 16, 2017

Abstract

Exploiting a novel panel dataset of consumer financial transactions in Singapore, we examine the consumption response to an anticipated, transitory price shock generated by the nation-wide annual sale event. Consistent with theory, we find inter-temporal substitution where consumers spend less immediately before the event, and cross-categorical substitution behavior where consumers decrease spending in items unaffected by the sale event. However, liquidity constrained consumers responded to the price change with significant spending increase and little substitution behavior. Moreover, consumers pay by credit card first and switch to debit card afterwards, further highlighting the role of liquidity in understanding the consumption response.

Keywords: Consumption, Great Singapore Sale, credit card, debit card, household finance, spending, transitory shocks, fiscal stimulus program

JEL Classification: D12, D91, P46

Suggested Citation

Agarwal, Sumit and Koo, Kang Mo and Qian, Wenlan, Consumption Response to Temporary Price Shock: Evidence from Singapore's Annual Sale Event (September 16, 2017). Georgetown McDonough School of Business Research Paper No. 3035787. Available at SSRN: https://ssrn.com/abstract=3035787 or http://dx.doi.org/10.2139/ssrn.3035787

Sumit Agarwal

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Kang Mo Koo (Contact Author)

Deakin University-Department of Finance ( email )

221 Burwood Highway
Burwood, Victoria
Australia

Wenlan Qian

National University of Singapore - NUS Business School ( email )

15 Kent Ridge Drive
Singapore 117592, 119245
Singapore
(65) 65163015 (Phone)

HOME PAGE: http://sites.google.com/site/wenlanqian/

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