The Effect of Macroeconomic Uncertainty on Household Spending

57 Pages Posted: 30 Mar 2021

See all articles by Olivier Coibion

Olivier Coibion

University of Texas at Austin

Dimitris Georgarakos

European Central Bank (ECB) - Directorate General Research; Center for Financial Studies (CFS)

Yuriy Gorodnichenko

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Geoff Kenny

European Central Bank (ECB)

Michael Weber

University of Chicago - Finance; National Bureau of Economic Research (NBER)

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Abstract

Using a new survey of European households, we study how exogenous variation in the macroeconomic uncertainty perceived by households affects their spending decisions. We use randomized information treatments that provide different types of information about the first and/or second moments of future economic growth to generate exogenous changes in the perceived macroeconomic uncertainty of some households. The effects on their spending decisions relative to an untreated control group are measured in follow-up surveys. Higher macroeconomic uncertainty induces households to reduce their spending on non-durable goods and services in subsequent months as well as to engage in fewer purchases of larger items such as package holidays or luxury goods. Moreover, uncertainty reduces household propensity to invest in mutual funds. These results support the notion that macroeconomic uncertainty can impact household decisions and have large negative effects on economic outcomes.

JEL Classification: E3, E4, E5

Suggested Citation

Coibion, Olivier and Georgarakos, Dimitris and Gorodnichenko, Yuriy and Kenny, Geoff and Weber, Michael, The Effect of Macroeconomic Uncertainty on Household Spending. IZA Discussion Paper No. 14213, Available at SSRN: https://ssrn.com/abstract=3813640

Olivier Coibion (Contact Author)

University of Texas at Austin ( email )

2317 Speedway
Austin, TX 78712
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Dimitris Georgarakos

European Central Bank (ECB) - Directorate General Research ( email )

Sonnemannstrasse 20
Frankfurt am Main, 60314
Germany

Center for Financial Studies (CFS) ( email )

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Germany

Yuriy Gorodnichenko

University of California, Berkeley - Department of Economics ( email )

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Berkeley, CA 94720-3880
United States

HOME PAGE: http://www.econ.berkeley.edu/~ygorodni/index.htm

National Bureau of Economic Research (NBER)

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IZA Institute of Labor Economics

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Geoff Kenny

European Central Bank (ECB) ( email )

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Frankfurt am Main, 60314
Germany

Michael Weber

University of Chicago - Finance ( email )

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Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

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United States

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