Leslie Sheng Shen
Federal Reserve Board
Institutional Affiliation: Federal Reserve Board
NBER Working Papers and Publications
|June 2018||Scarred Consumption|
with Ulrike Malmendier: w24696
We show that personal experiences of economic shocks can “scar'” consumer behavior in the long run. We first illustrate the effects of experience-based learning in a simple stochastic life-cycle consumption model with time-varying financial constraints. We then use data from the Panel Study of Income Dynamics (PSID), the Nielsen Homescan Panel, and the Consumer Expenditure Survey (CEX) to estimate the long-term effects of lifetime experiences on consumption. We show that households who have lived through times of high local and national unemployment, or who have experienced more personal unemployment, spend significantly less on food and total consumption, after controlling for income, wealth, employment, demographics, and macro-economic factors, such as the current unemployment rate. The ...