Expenditure On Durable Goods: A Case For Slow Adjustment
AbstractFor more than a half a decade, the fact that expenditure on durables can be well approximated by a random walk has remained a hidden puzzle, challenging almost any theory in which agents smooth the use of their wealth. This paper shows that once a nonparsimonious approach is used, or lower frequencies of the data are examined, the fact itself disappears; changes in expenditures on durables reveal a degree of reversion consistent with the permanent income hypothesis, although this reversion occurs at a rate significantly slower than what is suggested by a frictionless permanent income hypothesis model. Copyright 1990, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
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Bibliographic InfoPaper provided by Columbia University, Department of Economics in its series Discussion Papers with number 1989_21.
Length: 16 pages
Date of creation: 1989
Date of revision:
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expenditures ; durable goods ; permanent income ; wealth;
Other versions of this item:
- Caballero, Ricardo J, 1990. "Expenditure on Durable Goods: A Case for Slow Adjustment," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 727-43, August.
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