The Extensive Margin of Aggregate Consumption Demand

90 Pages Posted: 30 Apr 2019

See all articles by Claudio Michelacci

Claudio Michelacci

Einaudi Institute for Economics and Finance (EIEF)

Luigi Paciello

Einaudi Institute for Economics and Finance (EIEF)

Andrea Pozzi

Einaudi Institute for Economics and Finance (EIEF)

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Date Written: April 2019

Abstract

About half of the cyclical change in US non-durable consumption expenditure is due to changes in the products entering households' consumption basket (the extensive margin). Changes in the basket depend mostly on fluctuations in the rate at which households add new products; removals are relatively acyclical. These patterns are largely explained by the fact that households respond to income increases by adopting new product varieties in their consumption basket. Fluctuations in household adoption are a prominent determinant of the aggregate demand for new products and amplify the long-run welfare effects of aggregate shocks.

Suggested Citation

Michelacci, Claudio and Paciello, Luigi and Pozzi, Andrea, The Extensive Margin of Aggregate Consumption Demand (April 2019). CEPR Discussion Paper No. DP13687. Available at SSRN: https://ssrn.com/abstract=3379602

Claudio Michelacci (Contact Author)

Einaudi Institute for Economics and Finance (EIEF) ( email )

Via Due Macelli, 73
Rome, 00187
Italy

Luigi Paciello

Einaudi Institute for Economics and Finance (EIEF) ( email )

Via Due Macelli, 73
Rome, 00187
Italy

Andrea Pozzi

Einaudi Institute for Economics and Finance (EIEF) ( email )

Via Due Macelli, 73
Rome, 00187
Italy

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