Effects of Pandemics-Related Uncertainty on Household Consumption: Evidence From the Cross-Country Data

Abstract

The COVID-19 pandemic has affected various macroeconomic indicators. Given this backdrop, this research investigates the effects of the pandemics-related uncertainty on household consumption. For this purpose, we construct a simple theoretical model to study the effects of the pandemics-related uncertainty on household consumption. To estimate the theoretical model, we consider the panel dataset of 138 countries for the period from 1996 to 2017. We also use the Pandemic Uncertainty Index to measure the pandemics-related uncertainty. The theoretical model and the empirical findings from the Feasible Generalized Least Squares (FGLS) estimations indicate that the gross fixed capital formation, government consumption, balance of trade, and the Pandemic Uncertainty Index negatively affect household consumption. The results are also valid in the panel dataset of 42 high-income economies and the remaining 96 emerging economies.