This paper studies whether individual experiences of macroeconomic conditions affect consumption. Using detailed micro-data on household purchases,
we find households who have experienced higher unemployment conditions during their lifetime spend significantly less. Furthermore, they are more likely to
use coupons and allocate expenditure toward on-sale items, generic store brand
items, and lower-end products. In particular, our results show macroeconomic
shocks have stronger effects on cohorts with shorter lifetime histories, i.e., the
young, who lower their consumption expenditure to a significantly greater degree
than older cohorts during economic busts, and vice-versa during booms. Our results suggest a novel link between consumption, life-cycle and the state of the
economy | individuals' past experiences can be an importance force that give
rise to heterogeneity in consumption behavior across cohorts both in the cross
section and over time, thus making the composition of a population relevant for
understanding the long-run effects of macroeconomic shocks. |
