Abstract:
We study changes in households’ shopping behavior as an alternative mechanism for coping with financial shocks in smoothing consumption. Our results show that in financial downturns, households become more conscious about prices, such that they shop more from discount stores, purchase more products that they perceive as deals, and use more coupons in their shopping. We also show that discount stores steal market share from high-end stores during financially stressful times without any significant change in their prices. Our results indicate that product markets are crucial in smoothing consumption, especially when borrowing is not a feasible option.
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