Paper #1534

Títol:

Income-Induced expenditure switching

Autors:

Rudolfs Bems i Julian di Giovanni

Data:

Agost 2016

Resum:

This paper shows that an income effect can drive expenditure switching between domestic and imported goods. We use a unique Latvian scanner-level dataset, covering the 2008-09 crisis, to document several empirical findings. First, expenditure switching accounted for one-third of the fall in imports, and took place within narrowly-defined product groups. Second, there was no corresponding within-group change in relative prices. Third, consumers substituted from expensive imports to cheaper domestic alternatives. These findings motivate us to estimate a model of non-homothetic consumer demand, which explains two-thirds of the observed expenditure switching. Estimated switching is driven by income, not changes in relative prices.

Paraules clau:

Expenditure switching; relative price adjustment; crisis; income effect.

Codis JEL:

F1; F3; F4

Àrea de Recerca:

Macroeconomia i Economia Internacional

Publicat a:

American Economic Review, Vol. 106, No. 12, December 2016 (pp. 3898-3931)

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