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The Timing of Purchases and Aggregate Fluctuations

  • John V. Leahy
  • Joseph Zeira

We study the cyclical effects of the timing of durable goods purchases in a general equilibrium model in which both durable and non-durable goods are consumed and the durable good is lumpy. At the microeconomic level, the timing of durable goods purchases supplies some insulation for nondurable consumption over the cycle. At the macroeconomic level, the timing decisions tend to amplify and propagate wealth and income shocks. Our model also allows for endogenous price determination. When the price of the durable changes due to inflexibility of workers between sectors, the effect of adverse shocks is even stronger and longer. Copyright 2005, Wiley-Blackwell.

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File URL: http://hdl.handle.net/10.1111/0034-6527.00364
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Article provided by Oxford University Press in its journal The Review of Economic Studies.

Volume (Year): 72 (2005)
Issue (Month): 4 ()
Pages: 1127-1151

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Handle: RePEc:oup:restud:v:72:y:2005:i:4:p:1127-1151
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  1. 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.
  2. 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.
  3. José De Gregorio & Pablo E. Guidotti & Carlos A. Végh, 1998. "Inflation Stabilization and the Consumption of Durable Goods," Documentos de Trabajo 26, Centro de Economía Aplicada, Universidad de Chile.
  4. Sanford J Grossman & Guy Laroque, 2003. "Asset Pricing and Optimal Portfolio Choice in the Presence of Illiquid Durable Consumption Goods," Levine's Working Paper Archive 618897000000000803, David K. Levine.
  5. Caballero, R.J., 1990. "Durable Goods: An Explanation For Their Slow Adjustment," Discussion Papers 1990_49, Columbia University, Department of Economics.
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