Purchasing Power Gap and Consumer Resilience: An Empirical Investigation with Australia, Germany, Japan, and the United States

Abstract

Recent developments in the world in the aftermath of the COVID pandemic have generated never before seen challenges and hardship to consumers since the Great Depression. This context has raised interest in the resilience of consumers across the globe. This research project conducts an empirical reflection on the matter with a focus on developed nations of Australia, Germany, Japan and the United States. A framework including impulse response functions along with data spanning from 1980 to 2020 is considered. Findings show that innovations to purchasing power gaps of consumers in Australia, Japan and the United States are essentially absorbed within four years. However, it takes much longer in Germany as these innovations mostly dissipate within six years. This suggests that German consumers exhibit relatively weaker resilience than their counterparts in Australia, Japan, and the United States. The paper further argues that a combination of policies geared toward propping up aggregate demand and reinforcing the supply chain, both quantitatively and qualitatively, could prove to be effective in boosting consumer resilience.