Consumption Smoothing via Product Markets

Abstract

We investigate how households adjust their shopping behavior in response to financial shocks.  Our results show that households exhibit heightened price consciousness in financial downturns.  They patronize discount stores more, purchase products they perceive as deals, use coupons more frequently, and consume less nutritious food.  Discount stores experience an upswing in sales, while high-end establishments witness declining sales during financially stressful times.  These observations underscore the pivotal role of product markets in facilitating consumers’ consumption smoothing, particularly in scenarios where borrowing may not be a viable recourse.

Keywords: Consumption, Financial Stress, Personal Finance, Retail Markets

JEL Classification: D1, I31, L81, P36