Macroeconomic uncertainty shocks and households’ consumption choice

Exploiting U.S. households’ consumption survey data, we study whether recently developed indices of macroeconomic uncertainty (e.g., Jurado et al., 2015; Baker et al., 2016; Bekaert et al., 2019) affect household consumption choices. We find that positive shocks to financial, real, and macroeconomic uncertainty indices by Jurado et al. (2015), as well as S&P 500 implied volatility (VIX) significantly depress U.S. households’ consumption. We also find that households that are more uncertain about their individual future consumption react to economic uncertainty more sensitively. The real and macro uncertainty indices by Jurado et al. (2015) also have a long-lasting effect on consumption choices, consistent with the habit formation model.