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Durable Goods: An Explanation For Their Slow Adjustment

  • CABALLERO, R.J.

Aggregate expenditure on durable goods responds too slowly to wealth and other aggregate innovations to be consistent with the simplest frictionless version of PIH (permanent income hypothesis). In this paper I present a model of aggregate expenditure on durab1es that builds up from the lumpy nature of microeconomic purchases, and provide evidence supporting its contribution to the resolution of the ?slowness? puzzle. The paper also contains several new results on the problem of dynamic aggregation of stochastically heterogeneous units. In particular, I provide a simple characterization of the effects of heterogeneity and microeconomic lumpiness on aggregate dynamics.

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Paper provided by Columbia University, Department of Economics in its series Discussion Papers with number 1990_49.

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Length: 24 pages
Date of creation: 1990
Date of revision:
Handle: RePEc:clu:wpaper:1990_49
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  1. Caballero, R.J., 1989. "Expenditure On Durable Goods: A Case For Slow Adjustment," Discussion Papers 1989_21, Columbia University, Department of Economics.
  2. Bertola, Guiseppe & Caballero, Ricardo J, 1994. "Irreversibility and Aggregate Investment," Review of Economic Studies, Wiley Blackwell, vol. 61(2), pages 223-46, April.
  3. Avner BAR-ILAN & Alan S. BLINDER, 1988. "The Life Cycle Permanent-Income Model and Consumer Durables," Annales d'Economie et de Statistique, ENSAE, issue 9, pages 71-91.
  4. Bernanke, Ben, 1985. "Adjustment costs, durables, and aggregate consumption," Journal of Monetary Economics, Elsevier, vol. 15(1), pages 41-68, January.
  5. Alan S. Blinder, 1981. "Retail Inventory Behavior and Business Fluctuations," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(2), pages 443-520.
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