Discussion Paper Details

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Title: The Extensive Margin of Aggregate Consumption Demand

Author(s): Claudio Michelacci, Luigi Paciello and Andrea Pozzi

Publication Date: April 2019


Programme Area(s): Industrial Organization, Macroeconomics and Growth and Monetary Economics and Fluctuations

Abstract: About half of the cyclical change in US non-durable consumption expenditure is due to changes in the products entering households' consumption basket (the extensive margin). Changes in the basket depend mostly on fluctuations in the rate at which households add new products; removals are relatively acyclical. These patterns are largely explained by the fact that households respond to income increases by adopting new product varieties in their consumption basket. Fluctuations in household adoption are a prominent determinant of the aggregate demand for new products and amplify the long-run welfare effects of aggregate shocks.

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Bibliographic Reference

Michelacci, C, Paciello, L and Pozzi, A. 2019. 'The Extensive Margin of Aggregate Consumption Demand'. London, Centre for Economic Policy Research.