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Trading down and the business cycle


Jaimovich, Nir; Rebelo, Sergio; Wong, Arlene (2019). Trading down and the business cycle. Journal of Monetary Economics, 102:96-121.

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 recession’s severity. We find that the trading-down phenomenon accounts for a substantial fraction of the decline 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 recession’s severity. We find that the trading-down phenomenon accounts for a substantial fraction of the decline 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:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Uncontrolled Keywords:Recessions, quality choice, business cycles
Language:English
Date:April 2019
Deposited On:25 Sep 2019 13:22
Last Modified:25 Sep 2019 13:23
Publisher:Elsevier
ISSN:0304-3932
OA Status:Closed
Publisher DOI:https://doi.org/10.1016/j.jmoneco.2019.01.026
Other Identification Number:merlin-id:18219

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