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Do consumption categories respond differently to indebtedness shocks across business cycle stages?

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This paper investigates how household consumption of durable goods, nondurable goods, and services responds to unexpected changes in indebtedness within a threshold vector-autoregression (TVAR) framework. Two regimes emerge: good times, when the lagged output gap exceeds a data-driven threshold, and bad times, when it falls below. A positive indebtedness shock raises consumption of nondurable goods and services, with the effect strongest in bad times. By contrast, durable-goods spending declines in the bad-times regime. These findings imply that North American households rely on additional borrowing to smooth everyday expenditures, but cut back on big-ticket purchases when macroeconomic conditions deteriorate, even if they remain optimistic about future income.

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Articles publicats en revistes (Economia)

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Do consumption categories respond differently to indebtedness shocks across business cycle stages?