Crisis and Consumption Smoothing

Abstract

The dramatic impact of the current crisis on performance of businesses across sectors and economies has been headlining the business press for the past several months. Extant reconciliations of these patterns in the popular press rely on ad hoc reasoning. Using historical data on currency crisis episodes across the world, we show that the impact of the crisis on a firm's business is best understood by focusing on the impact of the crisis on the behavior of consumers. Our analyses show that consumer behavior in a crisis is characterized by consumption smoothing at various levels--intertemporal, intercategory, and intracategory. These behavioral adjustments result in significant reallocation of consumption expenditures. More importantly, the smoothing decisions because of a crisis are distinct and independent of the impact of changes in income and prices that accompany a crisis. Interestingly, there is marked variation in the patterns of consumption smoothing across different types of economies. Taken together, these results have important and interesting implications for managers, policy makers, and academics.consumer behavior, consumption smoothing, crisis, econometrics, marketing strategy

Strategies for Superior Performance in Recessions: Pro or Counter-Cyclical?

“…This is due to lower employment, which leads to decreased disposable income, and it is also due to decreased consumption confidence created by job insecurity (Dutt & Padmanabhan, 2011;Hall, 2005). Besides this general demand reduction, recessions alter demand patterns (Mansoor & Jalal, 2011) -the variability in customer populations and preferences.…”

“…Consumers become more price conscious (Hampson & McGoldrick, 2013) and "downtrade" to cheaper items and stores (Ang, Leong, & Kotler, 2000;Kaytaz & Gul, 2014) or substitutes (Dutt & Padmanabhan, 2011;Srinivasan et al, 2011). Discretionary such as leisure and luxury items suffer more (Mansoor & Jalal, 2011;Zurawicki & Braidot, 2005), while necessities such as housing and health care are less affected (Dutt & Padmanabhan, 2011;Kamakura & Du, 2012).…”

“…Discretionary such as leisure and luxury items suffer more (Mansoor & Jalal, 2011;Zurawicki & Braidot, 2005), while necessities such as housing and health care are less affected (Dutt & Padmanabhan, 2011;Kamakura & Du, 2012). The demand for durable goods is particularly reduced due to credit restrictions (Gertler, Kiyotaki, & Queralto, 2012) and the possibility of purchase postponement (Lamey, Deleersnyder, Steenkamp, & Dekimpe, 2012).…”

“…The scenario of decreased demand, intensified competition, and high uncertainty brings severe negative impacts to most firms, while some others are less affected or even prosper in recessions (Dutt & Padmanabhan, 2011). We study the strategies, pro-cyclical or counter-cyclical, that enable firms to have superior performance.…”

Permanent income hypothesis in visegrád countries

“…V [8] se pfiipomíná, Ïe vliv krize na HDP a ekonomick˘ rÛst je pfiedmûtem mnoha studií, ale spotfiebû jako nejvût‰í sloÏce HDP je vûno-váno jen málo pozornosti. Pokud by platila teorie permanentnosti, mohla by b˘t krize povaÏo-vána za tranzitorní záleÏitost a pouze zmûna permanentního pfiíjmu by mohla nastartovat v˘znamné zmûny ve spotfiebû.…”