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André Casalis

31 March 2020
WORKING PAPER SERIES - No. 2386
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Abstract
We study the cyclical dynamics of consumption in the euro area (EA) and the large EA countries by distinguishing durable from nondurable expenditures. We adopt a theoretical partial equilibrium framework to justify the identification strategy of our empirical model, a time-varying parameter structural vector autoregression (TVP-SVAR). Following the main insight from the theoretical model, that liquidity constraints induce important interactions between durables and nondurables, we distinguish durable-specific demand and supply shocks, while taking into account monetary and credit conditions. Our main findings are: (i) durables react faster and more strongly than nondurables after monetary shocks in the euro area and in the largest EA countries, a confirmation of an outcome commonly reported for the US; (ii) there is a large degree of cross-country heterogeneity in how different factors (including durable-specific ones) explain consumption; (iii) the strength of spillovers from durable to nondurable consumption, as predicted by theory, is empirically correlated with how much households across countries are likely to be liquidity constrained.
JEL Code
C11 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General→Bayesian Analysis: General
C32 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models, Diffusion Processes
D11 : Microeconomics→Household Behavior and Family Economics→Consumer Economics: Theory
E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
27 July 2020
ECONOMIC BULLETIN - ARTICLE
Economic Bulletin Issue 5, 2020
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Abstract
The article explores the behaviour and characteristics of durable goods consumption in the euro area, including an examination of the degree of heterogeneity among the euro area’s largest countries, and offers a perspective based on business cycle turning points. It also covers the relevance of financing conditions, including a specific focus on car purchases, as well as long-run trends in relative price and shares of durable goods in consumption. The analysis is complemented by insights from an empirical (structural VAR) model as described in Casalis and Krustev (2020, ECB Working Paper Series, No 2386), which sheds further light on the importance of durable goods-specific factors, alongside more traditional factors, in driving consumption.
JEL Code
E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles