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Notes on the Theory and Evidence on Aggregate Purchases of Durable Goods


  • Caballero, Ricardo J


The basic implications of the frictionless permanent income hypothesis for durable goods purchases are strongly rejected by the data. At the aggregate level there is too much inertia. At the macroeconomic level purchases are too infrequent and lumpy. In principle these rejections can be simultaneously rationalized by the presence of fixed costs of adjustment at the microeconomic level. This article provides a simplified overview of recent developments attempting to formalize and measure the implications of models of fixed cost of adjustment for microeconomic and especially, aggregate behavior of expenditure on durable goods. It contends that these efforts have paid off in terms of methodological and empirical improvements. Copyright 1994 by Oxford University Press.

Suggested Citation

  • Caballero, Ricardo J, 1994. "Notes on the Theory and Evidence on Aggregate Purchases of Durable Goods," Oxford Review of Economic Policy, Oxford University Press, vol. 10(2), pages 107-117, Summer.
  • Handle: RePEc:oup:oxford:v:10:y:1994:i:2:p:107-17

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    References listed on IDEAS

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    9. Michael Woodford, 1999. "Optimal monetary policy inertia," Proceedings, Federal Reserve Bank of San Francisco.
    10. Petra M. Geraats, 2002. "Central Bank Transparency," Economic Journal, Royal Economic Society, vol. 112(483), pages 532-565, November.
    11. Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, vol. 92(5), pages 1521-1534, December.
    12. Azariadis, Costas, 1981. "Self-fulfilling prophecies," Journal of Economic Theory, Elsevier, vol. 25(3), pages 380-396, December.
    13. Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522608, January.
    14. Carol Corrado, 1986. "Reducing uncertainty in current analysis and projections: the estimation of monthly GNP," Special Studies Papers 209, Board of Governors of the Federal Reserve System (U.S.).
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    Cited by:

    1. Christopher L. House & John V. Leahy, 2004. "An sS Model with Adverse Selection," Journal of Political Economy, University of Chicago Press, vol. 112(3), pages 581-614, June.
    2. Mario Cerrato & Christian de Peretti & Chris Stewart, 2008. "Is the consumption-income ratio stationary? Evidence from a nonlinear panel unit root test for OECD and non-OECD countries," Working Papers 2008_27, Business School - Economics, University of Glasgow.
    3. Sarantis, Nicholas & Stewart, Chris, 2003. "Liquidity constraints, precautionary saving and aggregate consumption: an international comparison," Economic Modelling, Elsevier, vol. 20(6), pages 1151-1173, December.
    4. Emilio Fernandez-Corugedo, 2004. "Consumption Theory," Handbooks, Centre for Central Banking Studies, Bank of England, number 23.
    5. Viviana P. Fernandez, 2000. "Decisions To Replace Consumer Durables Goods: An Econometric Application Of Wiener And Renewal Processes," The Review of Economics and Statistics, MIT Press, vol. 82(3), pages 452-461, August.
    6. Viviana Fernández, 2002. "What Drives Replacement of Durable Goods at the Micro Level?," Documentos de Trabajo 122, Centro de Economía Aplicada, Universidad de Chile.
    7. Robert-Paul Berben & Kerstin Bernoth & Mauro Mastrogiacomo, 2007. "Households' response to wealth changes: do gins or losses make a difference?," IFC Bulletins chapters,in: Bank for International Settlements (ed.), Proceedings of the IFC Conference on "Measuring the financial position of the household sector", Basel, 30-31 August 2006 - Volume 1, volume 25, pages 145-160 Bank for International Settlements.
    8. Mario Cerrato & Christian De Peretti & Chris Stewart, 2013. "Is The Consumption–Income Ratio Stationary? Evidence From Linear And Non-Linear Panel Unit Root Tests For Oecd And Non-Oecd Countries," Manchester School, University of Manchester, vol. 81(1), pages 102-120, January.
    9. David B. Cashin, 2017. "The Household Expenditure Response to a Consumption Tax Rate Increase," Finance and Economics Discussion Series 2017-035, Board of Governors of the Federal Reserve System (U.S.).

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