The Demographic Composition of Cyclical Consumption Volatility

20 Pages Posted: 30 Jul 2019 Last revised: 2 Apr 2020

See all articles by Anson Zhou

Anson Zhou

University of Wisconsin - Madison, Department of Economics, Students

Date Written: April 2, 2020

Abstract

This paper studies the effects of demographic structure on the cyclical volatility of aggregate consumption. We first document that young households have more volatile consumption expenditures in business cycles than prime-aged ones. Then, we identify large effects of demographic composition on cyclical volatility of consumption using variations of population age structure for 30 countries from 1951 to 2016. A simple model with differences in credit market access and exposure to shocks between agents of different age explains the empirical findings. When calibrated to the U.S. data, the model indicates that the former channel explains roughly 60 percent of the differences in cyclical consumption responses between young and old households, while the latter channel explains the remaining 40 percent.

Keywords: demographic structure, business cycle, consumption volatility

JEL Classification: E21, E32, J11

Suggested Citation

Zhou, Anson, The Demographic Composition of Cyclical Consumption Volatility (April 2, 2020). Available at SSRN: https://ssrn.com/abstract=3426911 or http://dx.doi.org/10.2139/ssrn.3426911

Anson Zhou (Contact Author)

University of Wisconsin - Madison, Department of Economics, Students ( email )

Madison, WI
United States

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