The COVID-19 Pandemic and the Consumption of Nondurables and Services

Abstract

Contrary to the Great and other past U.S. Recessions, the reduction in services consumption exceeds the decline in nondurables consumption during the COVID-19 pandemic. We study the drivers of this unprecedented phenomenon through the lens of an estimated multi-sector DSGE model that distinguishes between nondurables and services sectors. We find that economic uncer- tainty is once again important but it does not generate sectoral heterogeneity. Demand-side factors reallocating consumption across sectors and proxying for voluntary and regulatory social distancing measures, as well as the lack of wage adjustments in services despite plummeting employment, become influential during the pandemic.

Keywords: COVID-19, Services, Nondurables, DSGE

JEL Classification: E31, E32