Dissertations, Theses, and Capstone Projects
Date of Degree
6-2024
Document Type
Dissertation
Degree Name
Ph.D.
Program
Economics
Advisor
Christos Giannikos
Committee Members
Thom Thurston
Wim Vijverberg
Subject Categories
Economics | Macroeconomics
Keywords
Prices; Consumption; Home Production; Expectations; Households; Trust
Abstract
This dissertation consists of three chapters that study household consumption choices over the business cycle, the formation of household expectations and the trust of households in the monetary policy institutions.
Chapter 1: Using scanner data and product-level information, this chapter documents the trend and the cyclicality of the processing level of market-purchased household food consumption over the period 2007 to 2020 in the United States. I unveil a strategy, the processing effort, that households exploit to reduce the price of their basket. This strategy consists in altering their basket composition at business cycle frequencies to purchase less processed foods for which I uncover a lower price per unit. Several results emerge. First, the strategy is effective in reducing the price per unit of the household basket. Second, the strategy was used by households in both the Great and the Covid-19 recessions but varied in intensity across income groups consistent with the theory of the opportunity cost of time. Third, its nature allows to infer that home production is countercyclical which has implications for modelling the time allocation of households during economic downturns. Finally, I develop a tractable heterogeneous agent model (THANK) that reproduces the empirical evidence and reveals broader implications of the processing effort strategy including that following an interest rate increase, the inflation reduction is larger in presence of the processing effort channel.
Chapter 2: Using variations in the human-annotated topic content of national and regional telecasts, I explore the link between aggregated daily news and household unemployment, inflation, and economic situation expectations in France. Beyond the information included in national statistics, household expectations embody news information on topics related to the state of the economy, such as deficit, living cost and economic crisis. Inflation expectations additionally incorporate news on taxes, energy, and especially oil. Distinguishing regional from national television broadcasts reveals that household expectations incorporate both regional and national news, with news on local labor market conditions having a prominent role.
Chapter 3: While public trust may be a necessary condition for fulfilling the European Central Bank’s primary mandate of price stability, not delivering on that mandate might in turn deteriorate public trust in the European Central Bank (ECB). We therefore study how inflation impacts individuals’ trust in the ECB. We show that inflation only plays an indirect role in whether households trust the ECB: when inflation is high, respondents are more likely to see it as a top concern for themselves and their country. It is this concern with inflation that decreases their trust in the ECB. We further hypothesize that a higher exposure of individuals to inflation news increases the probability that they pay attention to inflation, and thus report to be concerned about inflation. We find that this is indeed the case – over and above the effect of inflation itself. The thresholds of inflation rates for which the media starts to pay attention to inflation are roughly in line with those needed to reach a 50% probability of being personally concerned about inflation.
Recommended Citation
Guillochon, Justine, "Heterogenous Household Expectations, Consumption Choices and Trust" (2024). CUNY Academic Works.
https://academicworks.cuny.edu/gc_etds/5729