The Effect of Macroeconomic Uncertainty on Household Spending

61 Pages Posted: 6 Apr 2021 Last revised: 12 Oct 2022

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)

Multiple version iconThere are 5 versions of this paper

Date Written: September 1, 2021

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 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 treated households. The effects on their spending decisions relative to an untreated control group are measured in follow-up surveys. Our results indicate that, after taking into account first moments, higher macroeconomic uncertainty induces households to significantly and persistently reduce their total monthly spending in subsequent months. Changes in spending are broad-based across spending categories and apply to larger durable good purchases as well. These results support the notion that macroeconomic uncertainty can impact household decisions and have large negative effects on economic outcomes.

Keywords: Uncertainty, household spending, household finance, Consumer Expectations Survey, randomized control trial

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 (September 1, 2021). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2021-35, Chicago Booth Research Paper No. 22-17, Available at SSRN: https://ssrn.com/abstract=3817610 or http://dx.doi.org/10.2139/ssrn.3817610

Olivier Coibion

University of Texas at Austin ( email )

2317 Speedway
Austin, TX Texas 78712
United States

Dimitris Georgarakos

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

Sonnemannstrasse 20
Frankfurt am Main, 60314
Germany

Center for Financial Studies (CFS) ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Yuriy Gorodnichenko

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

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

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

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
United States

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Geoff Kenny

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Michael Weber (Contact Author)

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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