Interest Rates and the Durability of Consumption Goods
AbstractIn this article I study an economy with irreversible durable investment and investors who consume a durable and a nondurable good. In a general equilibrium setting, these assumptions lead to endogenous variation in the implied risk aversion of investors and in the term structure of interest rates. In the model, the magnitude of the intertemporal elasticity of substitution places certain restrictions on the joint dynamical behavior of durable consumption, nondurable consumption, and the yield curve. Tests of the model using postwar U.S. data are supportive of these restrictions. However, while the model is able to generate a relatively large term spr
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Bibliographic InfoPaper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm224.
Date of creation: 01 Sep 2001
Date of revision: 01 Jan 2002
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- Peter Bank & Frank Riedel, 2003.
"Optimal Dynamic Choice of Durable and Perishable Goods,"
Bonn Econ Discussion Papers
bgse29_2003, University of Bonn, Germany.
- Peter Bank & Frank Riedel, 2003. "Optimal Dynamic Choice of Durable and Perishable Goods," Levine's Bibliography 666156000000000402, UCLA Department of Economics.
- Elena Márquez de la Cruz, 2005. "La elasticidad de sustitución intertemporal y el consumo duradero: un análisis para el caso español," Investigaciones Economicas, Fundación SEPI, vol. 29(3), pages 455-481, September.
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