Spending Less after (Seemingly) Bad News

50 Pages Posted: 20 Apr 2020

See all articles by Mark J. Garmaise

Mark J. Garmaise

University of California, Los Angeles (UCLA) - Anderson School of Management

Yaron Levi

University of Southern California - Marshall School of Business

Hanno Lustig

Stanford University

Multiple version iconThere are 2 versions of this paper

Date Written: April 2020

Abstract

Using high-frequency spending data, we show that household consumption displays excess sensitivity to salient macro-economic news, even when the news is not real. When the announced local unemployment rate reaches a 12-month maximum, local news coverage of unemployment increases and local consumers reduce their discretionary spending by 2% relative to consumers in areas with the same macro-economic fundamentals. The consumption of low-income households displays greater excess sensitivity to salience. The decrease in spending is not reversed in subsequent months; instead, negative news persistently reduces future spending for two to four months. Households in treated areas act as if they are more financially constrained than those in untreated areas with the same fundamentals.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Suggested Citation

Garmaise, Mark J. and Levi, Yaron and Lustig, Hanno, Spending Less after (Seemingly) Bad News (April 2020). NBER Working Paper No. w27010, Available at SSRN: https://ssrn.com/abstract=3580568

Mark J. Garmaise (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Yaron Levi

University of Southern California - Marshall School of Business ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

Hanno Lustig

Stanford University

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
12
Abstract Views
176
PlumX Metrics