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(In)Stability of the Relationship between Relative Expenditure and Price of Durable and Nondurable Goods

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  • VIPUL BHATT
  • N. KUNDAN KISHOR

Abstract

Using an intertemporal consumption model with nondurable and durable goods, we identify a break in the long‐run equilibrium relationship between their relative expenditure and relative prices. From 1959 to 1981, these goods were gross substitutes with an elasticity greater than one. Post‐1981, the estimated elasticity is below one, indicating complementarity. This shift altered short‐run dynamics with durable goods still driving error correction but the magnitude of adjustment is smaller. The cyclical component of durable goods consumption has become more persistent, suggesting that shocks, such as the COVID‐19 pandemic, now result in more prolonged deviations from the long‐run equilibrium.

Suggested Citation

  • Vipul Bhatt & N. Kundan Kishor, 2026. "(In)Stability of the Relationship between Relative Expenditure and Price of Durable and Nondurable Goods," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 58(1), pages 237-259, February.
    • Handle: RePEc:wly:jmoncb:v:58:y:2026:i:1:p:237-259
    DOI: 10.1111/jmcb.13210
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