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Uncertainty and Consumer Durables Adjustment

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Author Info
Bertola, Giuseppe
Guiso, Luigi
Pistaferri, Luigi

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Abstract

We study infrequent durables stock adjustment by consumers who also derive utility from non-durable consumption flows, in the presence of idiosyncratic income uncertainty. We first characterize how the extent of uncertainty bears theoretically on the cross-sectional distribution of the durable/non durable ratio, the probability of costly adjustment, and the size of adjustment. Then, we bring such predictions to bear on a data set with extensive information on disaggregated durable goods and subjective measures of future income uncertainty. The data feature two conceptually distinct sources of variation: cross-sectional heterogeneity of the sampled households' dynamic problems, and history-dependent heterogeneity in their situation at the beginning of the observation period. We note that the latter should affect the likelihood but not the size of stock adjustment decisions, and find broad support for theoretical predictions in formal selection-controlled regressions based on this insight.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3332.

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Date of creation: Apr 2002
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Handle: RePEc:cpr:ceprdp:3332

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Related research
Keywords: adjustment costs Heckman exclusion restriction optimal inaction

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Find related papers by JEL classification:
D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  2. Guiso, Luigi & Pistaferri, Luigi & Schivardi, Fabiano, 2001. "Insurance Within the Firm," CEPR Discussion Papers 2793, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  20. Mario Padula, 2000. "Durable Goods and Intertemporal Choices: A Survey," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 59(2), pages 245-269, September.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Charles Engel & Jian Wang, 2007. "International trade in durable goods: understanding volatility, cyclicality, and elastics," Globalization and Monetary Policy Institute Working Paper 03, Federal Reserve Bank of Dallas. [Downloadable!]
  2. Charles Engel & Jian Wang, 2008. "International Trade in Durable Goods: Understanding Volatility, Cyclicality, and Elasticities," NBER Working Papers 13814, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Joseph Nichols, 2004. "A Life-cycle Model with Housing, Portfolio Allocation, and Mortgage Financing," Econometric Society 2004 North American Winter Meetings 205, Econometric Society. [Downloadable!]
  4. Koeniger, Winfried, 2002. "The Dynamics of Market Insurance, Insurable Assets, and Wealth Accumulation," IZA Discussion Papers 615, Institute for the Study of Labor (IZA). [Downloadable!]
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