Consumption Expenditure

Consumption vs. Expenditure

Mark Aguiar Federal Reserve Bank of Boston

Erik Hurst University of Chicago NBER

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We would like to thank Daron Acemoglu, Fernando Alvarez, Susanto Basu, Marianne

Bertrand, Mark Bils, Ricardo Caballero, Steve Davis, Lars Hansen, Jonathon Heathcote, Michael Hurd, Anil Kayshap, Helen Levy, Anna Lusardi, Chris Mayer, Amil Petrin, Karl Scholz, Rob Shimer, Jon Skinner, Mel Stephens, Alwyn Young, Steve Zeldes, and two anonymous referees, along with seminar participants at the Boston Fed, Brown, Chicago, Columbia, Fed Board of Governors, Michigan, MIT, NBER EFG, New York Fed, NYU, RAND, Williams, and Wisconsin, for their helpful comments. We are extremely grateful of Bin Li for her exceptional research assistance. Both Aguiar and Hurst would like to acknowledge the financial support of the University of Chicago's Graduate School of Business. The views expressed in this paper are the authors’ own and do not necessarily reflect those of the Federal Reserve Bank of Boston or the Federal Reserve System.

Abstract Previous authors have documented a dramatic decline in food expenditures at the time of retirement. We show that this is matched by an equally dramatic rise in time spent shopping for and preparing meals. Using a novel data set that collects detailed food diaries for a large crosssection of U.S. households, we show that neither the quality nor the quantity of food intake deteriorates with retirement status. We also show that unemployed households experience a decline in food expenditure and food consumption commensurate with the impact of job displacement on permanent income. These results highlight how direct measures of consumption distinguish between anticipated and unanticipated shocks to income while measures of expenditures obscure the distinction.

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I.

Introduction Standard tests of the permanent income hypothesis (PIH) using data on nondurables

typically equate consumption with expenditure.1...