Research

Abstract: I examine how households adjust the quality margin of their purchases in response to adverse shocks. Using household scanner data for Germany, I document that households respond differently depending on their income levels: First, those with higher levels of income appear  to trade down in the quality of goods. Second, lower income households who on average tend to purchase lower quality goods exhibit a low propensity to trade down, presumably due to a limited capacity to do so. Next, I examine the short run equilibrium response of supply to a sudden increase in demand for lower quality varieties by higher income consumers.  To understand the general equilibrium implications of this shift in aggregate demand towards lower quality goods, I employ a shift-share research design. It relies on two components: predetermined spending shares for middle quality varieties across the product space for a large number of sociodemographic groups before the Great Recession, and heterogeneity in the population growth for these groups during the Great Recession. I find that a 1% aggregate demand shift towards lower quality goods in the aftermath of a recession increases the relative price of low quality varieties compared to the price of higher quality ones  by 0.33% on average.

Abstract: We investigate whether and how heterogeneity in consumption risk and inflation across households affect consumption demand and growth under the lens of an incomplete markets framework. Our model of household-level risk sharing imposes minimal restrictions on the financial market structure, allowing for both aggregate and idiosyncratic tradeable risks to be at least partially diversified and for precautionary saving motives. We bring the model to bear on empirical evidence, using household-level scanner data from Euro area regions and United Kingdom, together with a matching model for financial market participation. Our contribution is twofold: first, we develop a theoretical framework mapping consumption (rather than income) risk and inflation differentials onto consumption growth at regional level; second, we assess theoretical conditions empirically, exploiting heterogeneity in risk and risk sharing, by preference, income, residence and participation in financial markets. Our empirical analysis provides evidence that tradeable risk is insured primarily among financial market participants, and across regions of the euro area than regions across the border (provided that differences in inflation are accounted for). Consumption risk, proxied using variability of consumption growth within regions and income groups, weigh on consumption demand.

Abstract: The British public’s vote in June 2016 to leave the European Union ushered in a period of heightened uncertainty about the future of the commercial relations between the UK and EU. We examine how British firms adapted to the uncertain commercial environment through establishing new EU subsidiaries and operations. We document two stylized facts. First, there was little change in the overall sectoral composition of parent firms establishing EU operating bases before and after the Brexit referendum. However, second, the share of British headquarters that established a subsidiary outside their primary sector of operation increased after June 2016. We also examine the intertemporal variation in the number of newly-established subsidiaries of British firms in the EU from 2016 to 2021 and find that more subsidiaries were established whenever uncertainty over the future commercial relationship between the UK and EU was higher. Finally,  a difference in differences analysis documents that British parent firms establishing a first subsidiary after the referendum vote had relatively lower growth in turnover, profits, cash flow and assets in the year before and the year of establishing a subsidiary.