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Durable Goods: An Explanation For Their Slow Adjustment

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  • CABALLERO, R.J.

Abstract

Aggregate expenditure on durable goods responds too slowly to wealth and other aggregate innovations to be consistent with the simplest frictionless version of PIH (permanent income hypothesis). In this paper I present a model of aggregate expenditure on durab1es that builds up from the lumpy nature of microeconomic purchases, and provide evidence supporting its contribution to the resolution of the ?slowness? puzzle. The paper also contains several new results on the problem of dynamic aggregation of stochastically heterogeneous units. In particular, I provide a simple characterization of the effects of heterogeneity and microeconomic lumpiness on aggregate dynamics.

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Bibliographic Info

Paper provided by Columbia University, Department of Economics in its series Discussion Papers with number 1990_49.

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Length: 24 pages
Date of creation: 1990
Date of revision:
Handle: RePEc:clu:wpaper:1990_49

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Keywords: expenditures ; purchasing ; macroeconomics ; consumption;

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References

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  1. Caballero, R.J., 1989. "Expenditure On Durable Goods: A Case For Slow Adjustment," Discussion Papers 1989_21, Columbia University, Department of Economics.
  2. Ben S. Bernanke, 1982. "Adjustment Costs, Durables, and Aggregate Consumption," NBER Working Papers 1038, National Bureau of Economic Research, Inc.
  3. Avner BAR-ILAN & Alan S. BLINDER, 1988. "The Life Cycle Permanent-Income Model and Consumer Durables," Annales d'Economie et de Statistique, ENSAE, issue 9, pages 71-91.
  4. Giuseppe Bertola & Ricardo J. Caballero, 1991. "Irreversibility and Aggregate Investment," NBER Working Papers 3865, National Bureau of Economic Research, Inc.
  5. Alan S. Blinder, 1981. "Retail Inventory Behavior and Business Fluctuations," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(2), pages 443-520.
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