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Adjustment costs, durables, and aggregate consumption

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  • Bernanke, Ben

Abstract

Previous tests of the permanent income hypothesis (PIH) have focused on either nondurables or durables expenditures in isolation. This paper studies consumer purchases of nondurables and durables as the outcome of a single optimization problem.It is shown that the presence of adjustment costs of changing durables stocks may substantially affect the time series properties of both components of expenditure under the PIH.However, econometric tests based on this model do not contradict earlier rejections of the PIH in aggregate quarterly data.
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  • Bernanke, Ben, 1985. "Adjustment costs, durables, and aggregate consumption," Journal of Monetary Economics, Elsevier, vol. 15(1), pages 41-68, January.
    • Handle: RePEc:eee:moneco:v:15:y:1985:i:1:p:41-68
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    1. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-987, December.
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    5. Sargent, Thomas J, 1978. "Rational Expectations, Econometric Exogeneity, and Consumption," Journal of Political Economy, University of Chicago Press, vol. 86(4), pages 673-700, August.
    6. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, July.
    7. Ben S. Bernanke, 1984. "Permanent Income, Liquidity, and Expenditure on Automobiles: Evidence from Panel Data," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 99(3), pages 587-614.
    8. Flavin, Marjorie A, 1981. "The Adjustment of Consumption to Changing Expectations about Future Income," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 974-1009, October.
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    10. Mankiw, N. Gregory, 1982. "Hall's consumption hypothesis and durable goods," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 417-425.
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