Trading down and the business cycle

Nir Jaimovich, Sergio Rebelo, Arlene Wong

Research output: Contribution to journalArticlepeer-review

15 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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