IDEAS home Printed from https://ideas.repec.org/a/tpr/restat/v71y1989i2p356-63.html
   My bibliography  Save this article

The Stochastic Behavior of Durable and Nondurable Consumption

Author

Listed:
  • Startz, Richard

Abstract

The life cycle/permanent income hypothesis suggests that optimization by consumers should cause marginal utility to approximate a random walk. As a consequence, purchases of nondurable goods should also approximately follow a random walk and purchases of durable goods should approximately follow a white noise process. The univariate processes for nondurables and durables both appear to be random walks, which would confirm the LC/PIH for nondurables and reject it for durables. Adjustment costs and nonseparability between durables and nondurables are then added to the specification of utility. The resulting more general stochastic process is estimated and the data tend to support the existence of nonseparabilty, but not adjustment costs. While forecasts of durables are not fully informationally efficient, they do about as well as do forecasts of nondurables. The behavior of durable consumption purchases is shown to be consistent with the life cycle/permanent income hypothesis. Copyright 1989 by MIT Press.

Suggested Citation

  • Startz, Richard, 1989. "The Stochastic Behavior of Durable and Nondurable Consumption," The Review of Economics and Statistics, MIT Press, vol. 71(2), pages 356-363, May.
    • Handle: RePEc:tpr:restat:v:71:y:1989:i:2:p:356-63
    as

    Download full text from publisher

    File URL: http://links.jstor.org/sici?sici=0034-6535%28198905%2971%3A2%3C356%3ATSBODA%3E2.0.CO%3B2-J&origin=repec
    File Function: full text
    Download Restriction: Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Engel, Charles & Wang, Jian, 2011. "International trade in durable goods: Understanding volatility, cyclicality, and elasticities," Journal of International Economics, Elsevier, vol. 83(1), pages 37-52, January.
    2. repec:pri:wwseco:dp229 is not listed on IDEAS
    3. Rosenberg, Joshua V. & Engle, Robert F., 2002. "Empirical pricing kernels," Journal of Financial Economics, Elsevier, vol. 64(3), pages 341-372, June.
    4. Michal Pakos, "undated". "Measuring Intratemporal and Intertemporal Substitutions When Both Income and Substitution Effects Are Present: The Role of Consumer Durables," GSIA Working Papers 2007-E29, Carnegie Mellon University, Tepper School of Business.
    5. Garcia, Rene & Renault, Eric & Semenov, Andrei, 2006. "Disentangling risk aversion and intertemporal substitution through a reference level," Finance Research Letters, Elsevier, vol. 3(3), pages 181-193, September.
    6. Lastrapes, William D. & Potts, Todd B., 2006. "Durable goods and the forward-looking theory of consumption: Estimates implied by the dynamic effects of money," Journal of Economic Dynamics and Control, Elsevier, vol. 30(8), pages 1409-1430, August.
    7. Vincenzo Merella & Stephen E. Satchell, 2014. "Technology Shocks and Asset Pricing: The Role of Consumer Confidence," Carlo Alberto Notebooks 352, Collegio Carlo Alberto.
    8. Andrei Semenov, 2003. "High-Order Consumption Moments and Asset Pricing," Working Papers 2003_4, York University, Department of Economics, revised Jan 2005.
    9. Jochen Jungeilges & Tatyana Ryazanova, 2018. "Output volatility and savings in a stochastic Goodwin economy," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 8(3), pages 355-380, December.
    10. Merella, Vincenzo & Satchell, Stephen E., 2022. "By force of confidence," European Economic Review, Elsevier, vol. 150(C).
    11. Kris Jacobs & Kevin Q. Wang, 2002. "Idiosyncratic Consumption Risk and the Cross-Section of Asset Returns," CIRANO Working Papers 2002s-11, CIRANO.
    12. Pakos, Michal, 2004. "Asset Pricing with Durable Goods and Nonhomothetic Preferences," MPRA Paper 26167, University Library of Munich, Germany.
    13. Nadenichek, Jon, 1999. "Consumer durable goods in an international real business cycle framework," The Quarterly Review of Economics and Finance, Elsevier, vol. 39(2), pages 233-247.
    14. Bhatt, Vipul & Kishor, N. Kundan, 2023. "(In)Stability of the relationship between relative expenditure and prices of durable and non-durable goods," MPRA Paper 117688, University Library of Munich, Germany.
    15. Vincenzo Merella & Steve Satchell, 2005. "The Impact of Consumer Confidence on Expected Utility Maximization: A Contribution to the Equity Premium Puzzle Literature," Birkbeck Working Papers in Economics and Finance 0525, Birkbeck, Department of Economics, Mathematics & Statistics.
    16. Charles Engel & Jian Wang, 2007. "International trade in durable goods: understanding volatility, cyclicality, and elastics," Globalization Institute Working Papers 03, Federal Reserve Bank of Dallas.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tpr:restat:v:71:y:1989:i:2:p:356-63. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kelly McDougall (email available below). General contact details of provider: https://direct.mit.edu/journals .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.