Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/120822 
Year of Publication: 
2015
Series/Report no.: 
Staff Report No. 716
Publisher: 
Federal Reserve Bank of New York, New York, NY
Abstract: 
This paper sheds new light on the interactions between business cycles and the consumption distribution. We use Consumer Expenditure Survey data and a factor model to characterize the cyclical dynamics of the consumption distribution. We first establish that our approach is able to closely match business cycle fluctuations of consumption from the National Account. We then study the responses of the consumption distribution to total factor productivity shocks and economic policy uncertainty shocks. Importantly, we find that the responses of the right tail of the consumption distribution, mostly comprising more highly educated individuals, to shocks that drive cyclical fluctuations are larger and quicker than in other parts of the distribution. We note that the cost of business cycle fluctuations is larger than that found using aggregate consumption and that the shocks we analyze reduce consumption inequality on impact.
Subjects: 
consumption
inequality
cost of business cycles
heterogeneity
aggregate shocks
structural factor model
FAVAR
JEL: 
C3
D12
E21
E63
Document Type: 
Working Paper

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