THE IMPACT OF ECONOMIC UNCERTAINTY ON HOUSEHOLD CONSUMPTION CHOICES. EVIDENCE FROM EUROPE

Abstract

This paper is evaluating the impact of uncertainty shocks that are affecting the household behavior in the European Union countries by employing a quantitative approach. By employing a Bayesian VAR model, this paper provides an answer on the importance of the uncertainty shocks on the household consumption choices by using impulse response functions and variance decompositions statistics. The relevance of the study is a major one as it quantifies the impact of the uncertainty pressure on choices consumers make during uncertain times such as the great recession or covid-19 health crisis. Given the current increased focus of the literature on behavioral economics and consumer welfare this paper will provide an answer on consumption by sector increase and decrease as a result of uncertainty shocks.