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Advertising and Aggregate Consumption: A Bayesian DSGE Assessment

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  • Benedetto Molinari
  • Francesco Turino

Abstract

Aggregate data reveal that in the US, advertising absorbs 2% of GDP. Because the purpose of brand advertising is to foster sales, we ask whether such spending appreciably affects aggregate consumption and economic activity. This question is addressed by developing and estimating a dynamic general equilibrium model in which households’ preferences for differentiated goods depend on brand advertising. Estimated results for the US economy indicate that in the long‐run, the presence of advertising raises aggregate consumption, investment, and hours worked, eventually fostering overall economic activity. We also find that advertising has a relevant impact on fluctuations in consumption and investment.

Suggested Citation

  • Benedetto Molinari & Francesco Turino, 2018. "Advertising and Aggregate Consumption: A Bayesian DSGE Assessment," Economic Journal, Royal Economic Society, vol. 128(613), pages 2106-2130, August.
    • Handle: RePEc:wly:econjl:v:128:y:2018:i:613:p:2106-2130
    DOI: 10.1111/ecoj.12514
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    2. Mònica Guillen-Royo, 2018. "Sustainable consumption and wellbeing: does on-line shopping matter?," Working Papers on Innovation Studies 20181022, Centre for Technology, Innovation and Culture, University of Oslo.
    3. Alexandre Chirat, 2022. "Consumer sovereignty in the digital society," EconomiX Working Papers 2022-25, University of Paris Nanterre, EconomiX.
    4. Darren Filson, 2023. "Dissecting decline in the economy-wide advertising intensity 1997-2017," Economics Bulletin, AccessEcon, vol. 43(3), pages 1444-1452.
    5. Herranz, Moisés Meroño & Turino, Francesco, 2023. "Tax evasion, fiscal policy and public debt: Evidence from Spain," Economic Systems, Elsevier, vol. 47(3).

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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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