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Notes on the Theory and Evidence on Aggregate Purchases of Durable Goods

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  • Caballero, Ricardo J

Abstract

The basic implications of the frictionless permanent income hypothesis for durable goods purchases are strongly rejected by the data. At the aggregate level there is too much inertia. At the macroeconomic level purchases are too infrequent and lumpy. In principle these rejections can be simultaneously rationalized by the presence of fixed costs of adjustment at the microeconomic level. This article provides a simplified overview of recent developments attempting to formalize and measure the implications of models of fixed cost of adjustment for microeconomic and especially, aggregate behavior of expenditure on durable goods. It contends that these efforts have paid off in terms of methodological and empirical improvements. Copyright 1994 by Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Review of Economic Policy.

Volume (Year): 10 (1994)
Issue (Month): 2 (Summer)
Pages: 107-17

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Handle: RePEc:oup:oxford:v:10:y:1994:i:2:p:107-17

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Web page: http://oxrep.oupjournals.org/

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Cited by:
  1. Christopher L. House & John V. Leahy, 2000. "An sS Model with Adverse Selection," NBER Working Papers 8030, National Bureau of Economic Research, Inc.
  2. Mauro Mastrogiacomo & R.P. Berben & K. Bernoth, 2006. "Households' response to wealth changes; do gains or losses make a difference," CPB Discussion Paper 63, CPB Netherlands Bureau for Economic Policy Analysis.
  3. Viviana Fernandez, 2000. "Decisions to Replace Consumer Durables Goods: An Econometric Application of Wiener and Renewal Processes," Documentos de Trabajo 87, Centro de Economía Aplicada, Universidad de Chile.
  4. Sarantis, Nicholas & Stewart, Chris, 2003. "Liquidity constraints, precautionary saving and aggregate consumption: an international comparison," Economic Modelling, Elsevier, vol. 20(6), pages 1151-1173, December.
  5. Emilio Fernandez-Corugedo, 2004. "Consumption Theory," Handbooks, Centre for Central Banking Studies, Bank of England, number 23.
  6. Mario Cerrato & Christian de Peretti & Chris Stewart, 2008. "Is the consumption-income ratio stationary? Evidence from a nonlinear panel unit root test for OECD and non-OECD countries," Working Papers 2008_27, Business School - Economics, University of Glasgow.
  7. Viviana Fernández, 2002. "What Drives Replacement of Durable Goods at the Micro Level?," Documentos de Trabajo 122, Centro de Economía Aplicada, Universidad de Chile.

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