(S)Cars and the Great Recession

Author:

Attanasio Orazio1234,Larkin Kieran5,Ravn Morten O.67,Padula Mario89

Affiliation:

1. Department of Economics, Yale University

2. Institute for Fiscal Studies

3. FAIR at NHH

4. National Bureau of Economic Research

5. Institute for International Economic Studies, Stockholm University

6. Department of Economics, University College London

7. Centre for Economic Policy Research

8. Commissione di Vigilanza sui Fondi Pensione (COVIP)

9. Department of Economics, Università Ca' Foscari di Venezia

Abstract

United States households' consumption expenditures and car purchases collapsed during the Great Recession and more so than income changes would have predicted. Using CEX data, we show that both the extensive and the intensive car spending margins contracted sharply in the Great Recession. We also document significant cross‐cohort differences in the impact of the Great Recession including a stronger reduction in car spending by younger cohorts. We draw inference on the sources of the Great Recession by investigating which shocks can explain household choices in a 60 period life‐cycle model with idiosyncratic and aggregate shocks fitted to aggregate and life‐cycle moments. We find that the Great Recession was caused by a combination of large aggregate income and wealth shocks, while cross‐cohort adjustment patterns imply a role for life‐cycle income profile shocks. We also find a role for car loan premia shocks in accounting for car spending and car loans.

Publisher

The Econometric Society

Subject

Economics and Econometrics

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