The Effect of Macroeconomic Uncertainty on Household Spending

Using a new survey of European households, we study how exogenous variation in the macroeconomic uncertainty perceived by households affects their spending decisions. We use randomized treatments that provide different types of information about the first and/or second moments of future economic growth to generate exogenous changes in the perceived macroeconomic uncertainty of treated households. The effects on their spending decisions relative to an untreated control group are measured in follow-up surveys. Our results indicate that, after taking into account first moments, higher macroeconomic uncertainty induces households to significantly and persistently reduce their total monthly spending in subsequent months. Changes in spending are broad-based across spending categories and apply to larger durable good purchases as well. These results support the notion that macroeconomic uncertainty can impact household decisions and have large negative effects on economic outcomes.