Trading Down and the Business Cycle
We document two facts. First, during the Great Recession, consumers traded down in the quality of the goods and services they consumed. Second, the production of low-quality goods is less labor intensive than that of high-quality goods. When households traded down, labor demand fell, increasing the severity of the recession. We find that the trading-down phenomenon accounts for a substantial fraction of the fall in U.S. employment in the recent recession. We show that embedding quality choice in a business-cycle model improves the model's amplification and comovement properties.
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Copy CitationNir Jaimovich, Sergio Rebelo, and Arlene Wong, "Trading Down and the Business Cycle," NBER Working Paper 21539 (2015), https://doi.org/10.3386/w21539.
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Published Versions
Nir Jaimovich & Sergio Rebelo & Arlene Wong, 2019. "Trading Down and the Business Cycle," Journal of Monetary Economics, . citation courtesy of 
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