In this box you will analyze the cyclical properties of household expenditure: non-durable goods, durable goods, and services. That is, how they correlate with the business cycle and whether there is the smoothing behavior predicted by the theory and observed in the aggregate consumption series. Reveal the mastering of the material by your creating a write-up for a third person in a professional research brief or in the style of a newsletter that companies usually provide to their clients. **1500 words double spaced.
Get the following quarterly series from the St. Louis Federal Reserve Bank FRED database from 1999 onwards:
– Real Personal Consumption Expenditures: Nondurable Goods
– Real Personal Consumption Expenditures: Durable Goods
– Real Personal Consumption Expenditures: Services
– Real Gross Domestic Product
These series are in levels (i.e. in dollars), so calculate their quarterly growth rate (percentage change from quarter to quarter) and plot each of the first three series separately against real GDP.
What features do you observe? How do they compare to aggregate consumption (Real Personal Consumption Expenditures)? From a firm’s perspective, why are these patterns important?
This article came out in last week’s The Economist can help gain another perspective on the idea of the box.