The Rise and Fall of Consumption in the ’00s
U.S. consumption has gone through steep ups and downs since the turn of the millennium, but the causes of these fluctuations are still imperfectly identified. We quantify the relative impact on consumption growth of income, unemployment, house prices, credit scores, debt, expectations, foreclosures, inequality, and refinancings for four subperiods: the “dot-com recession” (2001-2003), the “subprime boom” (2004-2006), the Great Recession (2007-2009), and the “tepid recovery” (2010-2012). We document that the explanatory power of different factors varies by subperiods, implying that a successful modeling of this decade needs to allow for multiple causal determinants of consumption.
Keywords: consumption growth, wealth effects, income inequality, debt overhang, consumer credit, consumer expectations, foreclosures, cash-out refinancing, dot-com recession, subprime boom, Great Recession, tepid recovery.
JEL Codes: E21, E24.