Trading Down and the Business Cycle

Sergio Rebelo (), Nir Jaimovich and Arlene Wong ()

No 10807, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We document two facts. First, during recessions consumers trade down in the quality of the goods and services they consume. Second, the production of low-quality goods is less labor intensive than that of high-quality goods. So, when households trade down, labor demand falls, increasing the severity of recessions. We find that the trading-down phenomenon accounts for a substantial fraction of the fall in U.S. employment in the recent recession. We study two business cycle models that embed quality choice and find that the presence of quality choice magnifies the response of these economies to real and monetary shocks.

Keywords: Business cycle; Quality choice; Recessions (search for similar items in EconPapers)
JEL-codes: E2 E3 E4 (search for similar items in EconPapers)
Date: 2015-09
New Economics Papers: this item is included in nep-dge and nep-mac
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Citations: View citations in EconPapers (21)

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Related works:
Journal Article: Trading down and the business cycle (2019)
Working Paper: Trading down and the business cycle (2015)
Working Paper: Trading Down and the Business Cycle (2015)
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