Experience Effects in Consumption

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IZA Seminar

Place: Schaumburg-Lippe-Str. 9, 53113 Bonn

Date: 22.09.2015, 12:15 - 13:30


Presentation by 

Ulrike Malmendier (University of California, Berkeley)


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.

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