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Consumer Durables and the Real Interest Rate

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  • Mankiw, N Gregory

Abstract

One important channel through which real interest rates affect aggregate demand is consumer expenditure on durable goods. This paper examines empirically the link between interest rates and consumer durables. Solving for the decision rule relating income and interest rates to consumer demand is an intractable task. This paper avoids this problem by examining the first-order conditions necessary for maximization by the representative consumer. Structural parameters of there presentative utility function are thus recovered. The estimated model suggests that expenditure on consumer durables is far more sensitive to changes in the interest rate than is expenditure on nondurables and services.
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  • Mankiw, N Gregory, 1985. "Consumer Durables and the Real Interest Rate," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 353-362, August.
  • Handle: RePEc:tpr:restat:v:67:y:1985:i:3:p:353-62
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    References listed on IDEAS

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    1. Shapiro, Matthew D., 1984. "The permanent income hypothesis and the real interest rate : Some evidence from panel data," Economics Letters, Elsevier, vol. 14(1), pages 93-100.
    2. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-987, December.
    3. N. Gregory Mankiw & Julio J. Rotemberg & Lawrence H. Summers, 1985. "Intertemporal Substitution in Macroeconomics," The Quarterly Journal of Economics, Oxford University Press, vol. 100(1), pages 225-251.
    4. Lawrence H. Summers, 1982. "Tax Policy, the Rate of Return, and Savings," NBER Working Papers 0995, National Bureau of Economic Research, Inc.
    5. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
    6. Mankiw, N. Gregory, 1982. "Hall's consumption hypothesis and durable goods," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 417-425.
    7. Bernanke, Ben, 1985. "Adjustment costs, durables, and aggregate consumption," Journal of Monetary Economics, Elsevier, vol. 15(1), pages 41-68, January.
    8. Mankiw, N. Gregory, 1981. "The permanent income hypothesis and the real interest rate," Economics Letters, Elsevier, vol. 7(4), pages 307-311.
    9. Mishkin, Frederic S, 1976. "Illiquidity, Consumer Durable Expenditure, and Monetary Policy," American Economic Review, American Economic Association, vol. 66(4), pages 642-654, September.
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