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Trading down and the business cycle


Jaimovich, Nir; Rebelo, Sergio; Wong, Arlene (2017). Trading down and the business cycle. NBER Working Papers 21539, National Bureau of Economic Research.

Abstract

We document two facts. First, during the Great Recession, consumers traded down in the quality of the goods and services they consumed. Second, the production of low-quality goods is less labor intensive than that of high-quality goods. When households traded down, labor demand fell, increasing the severity of the recession. We find that the trading-down phenomenon accounts for a substantial fraction of the fall in U.S. employment in the recent recession. We show that embedding quality choice in a business-cycle model improves the model's amplification and comovement properties.

Abstract

We document two facts. First, during the Great Recession, consumers traded down in the quality of the goods and services they consumed. Second, the production of low-quality goods is less labor intensive than that of high-quality goods. When households traded down, labor demand fell, increasing the severity of the recession. We find that the trading-down phenomenon accounts for a substantial fraction of the fall in U.S. employment in the recent recession. We show that embedding quality choice in a business-cycle model improves the model's amplification and comovement properties.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:E1, E2, E3, E4
Uncontrolled Keywords:Recessions; quality choice; business cycles
Language:English
Date:October 2017
Deposited On:17 Jan 2018 16:02
Last Modified:19 Feb 2018 10:31
Series Name:NBER Working Papers
Additional Information:Paper Issued in September 2015, revised in October 2017
OA Status:Green
Publisher DOI:https://doi.org/10.3386/w21539
Related URLs:http://www.nber.org/papers/w21539

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