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Pandemic Shocks and Household Spending *
Author(s) -
Finck David,
Tillmann Peter
Publication year - 2022
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/obes.12471
Subject(s) - shock (circulatory) , demographic economics , surprise , economics , consumption (sociology) , pandemic , covid-19 , quartile , consumer spending , econometrics , monetary economics , macroeconomics , statistics , medicine , mathematics , psychology , social psychology , social science , confidence interval , disease , pathology , recession , sociology , infectious disease (medical specialty)
We study the response of daily household spending to the surprise number of fatalities of the COVID‐19 pandemic, which we label as a pandemic shock. Based on daily forecasts of the number of fatalities, we construct the surprise component as the difference between the actual and the expected number of deaths. We allow for state‐dependent effects of the shock depending on the position on the curve of infections. Spending falls after the shock and is particularly sensitive to the shock when the number of new infections is strongly increasing. If the number of infections grows moderately, the drop in spending is smaller. We also estimate the effect of the shock across income quartiles. In each state, low‐income households exhibit a significantly larger drop in consumption than high‐income households. Thus, consumption inequality increases after a pandemic shock. Our results hold for the US economy and the key US states. The findings remain unchanged if we choose alternative state‐variables to separate regimes.