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The Timing of Purchases and Aggregate Fluctuations

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  • John V. Leahy
  • Joseph Zeira

Abstract

This paper analyzes how the decision of when to buy a durable good affects both non-durable consumption and business cycle dynamics. At the individual level, we show that the timing of durable goods purchases plays an important role in smoothing consumption over time. In the benchmark case, the time at which the agent purchases the durable good is the only variable that reacts to changes in wealth, while other variables, such as the consumption of non-durables or the amount of the durable that the individual purchases, remain unchanged. At the aggregate level, we show that timing decisions can serve as a mechanism for the amplification and propagation of aggregate shocks. A decline in wealth causes individuals to delay their durable goods purchases which reduces demand dramatically for some time.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7672.

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Date of creation: Apr 2000
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Publication status: Published as "Sectoral Shocks, Learning, and Aggregate Fluctuations", Review of Economic Studies, Vol. 60, no. 205 (1993): 777-794.
Handle: RePEc:nbr:nberwo:7672

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  1. De Gregorio, Jose & Guidotti, Pablo E & Vegh, Carlos A, 1998. "Inflation Stabilisation and the Consumption of Durable Goods," Economic Journal, Royal Economic Society, vol. 108(446), pages 105-31, January.
  2. Ricardo J. Caballero, 1991. "Durable Goods: An Explanation for Their Slow Adjustment," NBER Working Papers 3748, National Bureau of Economic Research, Inc.
  3. Bar-Ilan, Avner & Blinder, Alan S, 1992. "Consumer Durables: Evidence on the Optimality of Usually Doing Nothing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(2), pages 258-72, May.
  4. Eberly, J.C., 1990. "Adjustment of Consumers'durables Stocks: Evidence from Automobile Purchases," Weiss Center Working Papers 22-91, Wharton School - Weiss Center for International Financial Research.
  5. Grossman, Sanford J & Laroque, Guy, 1990. "Asset Pricing and Optimal Portfolio Choice in the Presence of Illiquid Durable Consumption Goods," Econometrica, Econometric Society, vol. 58(1), pages 25-51, January.
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Cited by:
  1. Christopher L. House & Jing Zhang, 2012. "Layoffs, Lemons and Temps," NBER Working Papers 17962, National Bureau of Economic Research, Inc.
  2. Talan Iscan, 1999. "Present Value Tests of the Current Account with Durables Consumption," Department of Economics at Dalhousie University working papers archive present, Dalhousie, Department of Economics.
  3. Joseph Vavra & David Berger, 2012. "Consumption Dynamics During the Great Recession," 2012 Meeting Papers 109, Society for Economic Dynamics.
  4. Christopher L. House & John V. Leahy, 2000. "An sS Model with Adverse Selection," NBER Working Papers 8030, National Bureau of Economic Research, Inc.
  5. Ennio Stacchetti & Dmitriy Stolyarov, 2004. "Obsolescence of Durable Goods and Optimal Consumption," Econometric Society 2004 North American Summer Meetings 120, Econometric Society.
  6. Giuseppe Bertola & Luigi Guiso & Luigi Pistaferri, 2005. "Uncertainty and Consumer Durables Adjustment," Review of Economic Studies, Oxford University Press, vol. 72(4), pages 973-1007.
  7. Yuriy Gorodnichenko & Klara Sabirianova Peter & Dmitriy Stolyarov, 2010. "Inequality and Volatility Moderation in Russia: Evidence from Micro-Level Panel Data on Consumption and Income," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(1), pages 209-237, January.
  8. David Berger & Joseph Vavra, 2014. "Consumption Dynamics During Recessions," NBER Working Papers 20175, National Bureau of Economic Research, Inc.
  9. Kick, Thomas & Ruprecht, Benedikt & Onali, Enrico & Schaeck, Klaus, 2014. "Wealth shocks, credit-supply shocks, and asset allocation: Evidence from household and firm portfolios," Discussion Papers 07/2014, Deutsche Bundesbank, Research Centre.
  10. Veronica Guerrieri & Guido Lorenzoni, 2011. "Credit Crises, Precautionary Savings, and the Liquidity Trap," NBER Working Papers 17583, National Bureau of Economic Research, Inc.

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