Berger, D. & Vavra, J. (2014) “Durable consumption during recessions“, VoxEU Organisation, 03 Ιουλίου.
Various stimulus programmes have been implemented in a response to the decline in consumption of durables since the Recession. This column argues that standard analysis of such programmes could be overstating their effectiveness. Aggregate durable spending is much less responsive to stimulus during recessions. Microeconomic frictions lead households to adjust their durable holdings less frequently.
Over the course of the Great Recession, purchases of new vehicles and other consumer durables fell by $153 billion. Purchases of new homes and other forms of residential investments declined by more than $260 billion. All-told, declines in broadly defined durable spending accounted for more than half of the total decline in GDP during the Recession.
Various stimulus programs, such as the ‘First-Time-Home-Buyers-Credit’ and the ‘Cash-for-Clunkers’ programme were implemented in response to these declines in durable spending. How effective are these sorts of fiscal or monetary stimulus at propping up durable demand during recessions?
The simplest, but not free of flaws, way to answer this question is to regress changes in durable spending on changes in government spending. However, this will give a misleading answer because we know that government stimulus is more likely to occur when durable spending is falling, so a simple regression might lead one to the erroneous conclusion that government spending causes durable spending to fall. Thus, the standard approach for estimating the response of durable spending to fiscal or monetary stimulus is to use vector autoregression models (VARs). These methods look at the relationship between economic variables over long periods of time, and typically exploit differences in timing to isolate causal effects. See Bernanke and Gertler (1995) for an example of the effect of cuts in the FFR on durable spending.
Σχετικές αναρτήσεις:
- Muro, D. & Vidal, G. (2014) “Mind the Gaps: The Political Consequences of the Great Recession in Europe“, Eurocrisis in the Press, LSE EUROPP, 10 Ιουνίου.
- Ball, M. L. (2014) “Long-Term Damage from the Great Recession in OECD Countries“, NBER Working Paper No. 20185, Μάιος.
- Matsaganis, M. & Leventi, C. (2014) “Poverty and Inequality during the Great Recession in Greece“. Political Studies Review, 12: 209–223.