Trading down and the business cycle

Nir Jaimovich, Sergio Rebelo, Arlene Wong

Research output: Contribution to journalArticle

3 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)96-121
Number of pages26
JournalJournal of Monetary Economics
Volume102
DOIs
StatePublished - Apr 2019

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Keywords

  • Business cycles
  • Quality choice
  • Recessions

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