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Uncertainty and Consumer Durables Adjustment

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Author Info
Giuseppe Bertola

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Abstract

We characterize infrequent durables stock adjustment by consumers who also derive utility from non-durable consumption flows in the presence of idiosyncratic income uncertainty. The data we analyse include subjective future income uncertainty measures, which we use as instruments in the estimation of relevant parameters of heterogeneous consumers' dynamic adjustment problems. The data feature two conceptually distinct sources of variation: cross-sectional heterogeneity of the sampled households' dynamic problems, and history-dependent heterogeneity in their situation during the observation period. We note that the latter should affect the likelihood but not the size of stock adjustment decisions, and find broad support for theoretical predictions in formal selection-controlled regressions based on this insight. Copyright The Review of Economic Studies Limited, 2005.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/0034-6527.00358
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Article provided by Blackwell Publishing in its journal Review of Economic Studies.

Volume (Year): 72 (2005)
Issue (Month): 4 (October)
Pages: 973-1007
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Handle: RePEc:bla:restud:v:72:y:2005:i:4:p:973-1007

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References listed on IDEAS
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  2. Guiso, Luigi & Pistaferri, Luigi & Schivardi, Fabiano, 2001. "Insurance Within the Firm," CEPR Discussion Papers 2793, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  4. Bar-Ilan, Avner & Blinder, Alan S, 1992. "Consumer Durables: Evidence on the Optimality of Usually Doing Nothing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(2), pages 258-72, May. [Downloadable!] (restricted)
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  7. Bertola, G. & Caballero, R.J., 1990. "Kinked Adjustment Costs And Aggregate Dynamics," Discussion Papers 1990_20, Columbia University, Department of Economics.
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  20. Mario Padula, 2000. "Durable Goods and Intertemporal Choices: A Survey," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 59(2), pages 245-269, September.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Charles Engel & Jian Wang, 2007. "International trade in durable goods: understanding volatility, cyclicality, and elastics," Globalization and Monetary Policy Institute Working Paper 03, Federal Reserve Bank of Dallas. [Downloadable!]
  2. Charles Engel & Jian Wang, 2008. "International Trade in Durable Goods: Understanding Volatility, Cyclicality, and Elasticities," NBER Working Papers 13814, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Joseph Nichols, 2004. "A Life-cycle Model with Housing, Portfolio Allocation, and Mortgage Financing," Econometric Society 2004 North American Winter Meetings 205, Econometric Society. [Downloadable!]
  4. Koeniger, Winfried, 2002. "The Dynamics of Market Insurance, Insurable Assets, and Wealth Accumulation," IZA Discussion Papers 615, Institute for the Study of Labor (IZA). [Downloadable!]
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