Pandemic Shocks and Household Spending

We study the response of daily household spending to the unexpected component of the COVID-19 pandemic, which we label as pandemic shock. Based on daily forecasts of the number of fatalities, we construct the surprise component as the difference between the actual and the expected number of deaths....

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Bibliographic Details
Published in:MAGKS - Joint Discussion Paper Series in Economics (Band 36-2020)
Main Authors: Finck, David, Tillmann, Peter
Format: Article
Language:English
Published: Philipps-Universität Marburg 2020
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Online Access:PDF Full Text
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Summary:We study the response of daily household spending to the unexpected component of the COVID-19 pandemic, which we label as pandemic shock. Based on daily forecasts of the number of fatalities, we construct the surprise component as the difference between the actual and the expected number of deaths. We allow for state-dependent effects of the shock depending on the position on the curve of infections. Spending falls after the shock and is particularly sensitive to the shock when the number of new infections is strongly increasing. If the number of infections grows moderately, the drop in spending is smaller. We also estimate the effect of the shock across income quartiles. In each state, low-income households exhibit a significantly larger drop in consumption than high-income households. Thus, consumption inequality increase after a pandemic shock. Our results hold for the US economy and the key US states. The findings remain unchanged if we choose alternative state-variables to separate regimes.
Physical Description:35 Pages
ISSN:1867-3678
DOI:10.17192/es2024.0662