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 language | English (US) |
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Pages (from-to) | 96-121 |
Number of pages | 26 |
Journal | Journal of Monetary Economics |
Volume | 102 |
DOIs | |
State | Published - Apr 2019 |
All Science Journal Classification (ASJC) codes
- Finance
- Economics and Econometrics
Keywords
- Business cycles
- Quality choice
- Recessions