This paper incorporates the nature of terrorist threats into the Yarri (1965)--Blanchard (1985) model and uses it to discuss the transitional dynamics of consumption in response to an anticipated terrorist attack. It is shown that if the terrorist attack is pre-announced (and hence anticipated) and the public is fully informed, short-term consumption may misadjust from its long-term level. Before the terrorist attacks actually take place, households may be motivated to increase (rather than decrease) their consumption as a temporary response. This result may explain the temporary phenomenon of the increased consumption of certain types of goods in the period following September 11.
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Volume (Year): 16 (2005) Issue (Month): 6 (December) Pages: 415-425 Download reference. The following formats are available: HTML
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