Working Paper

Asymmetric Responses of Consumer Spending to Energy Prices: A Threshold VAR Approach


Abstract: We document asymmetric responses of consumer spending to energy price shocks: Using a multiple-regime threshold vector autoregressive model estimated with Bayesian methods on US data, we find that positive energy price shocks have a larger negative effect on consumption compared with the increase in consumption in response to negative energy price shocks. For large shocks, the cumulative consumption responses are three to five times larger for positive than for negative shocks. Digging into disaggregated spending, we find that the estimated asymmetric responses are strongest for durable goods, but asymmetries are also present in the responses of nondurables and services.

Keywords: consumption; energy prices; asymmetry; multivariate threshold models; nonlinear structural impulse response;

JEL Classification: E21; C11; C32; Q43;

https://doi.org/10.26509/frbc-wp-202017

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Provider: Federal Reserve Bank of Cleveland

Part of Series: Working Papers

Publication Date: 2020-06-16

Number: 202017