Time-expenditure substitution explains 40 percent of policy impact

Matching American Time Use Survey data with Personal Consumption Expenditures from 2003 to 2019, the researchers construct ten consumption activities to track spending and time reallocation.

During downturns, households cut spending most sharply in activities to which they shift foregone market hours.

For Sports and Exercise, time cyclicality reaches 0.52 and the expenditure correlation with GDP is 0.76, while the elasticity of substitution between time and spending is 3.08. In Home Maintenance and Gardening, elasticity reaches 3.42 with time cyclicality at 0.53. Conversely, core home activities exhibit lower substitutability, with Cooking, Cleaning, Eating, and Drinking at 1.41 and TV and Radio at 1.52.

To isolate the transmission mechanism, the authors develop a two-sector New Keynesian model with home production.

Using CPI microdata from 1978 to 2019, they find regular price durations are nearly identical across high and low time-cyclicality bundles, at 7.4 and 8.2 months with Calvo parameters of 0.59 and 0.63. Disciplining the model with microeconomic elasticity estimates shows that time-expenditure substitution accounts for roughly 40 percent of the immediate spending drop after a 100-basis-point monetary tightening.