IDEAS home Printed from https://ideas.repec.org/p/ctl/louvir/2017021.html
   My bibliography  Save this paper

Durable Goods Markets in Heterogenous Agents Economies

Author

Listed:
  • Boris Chafwehé

    () (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

Abstract

I provide a theoretical framework of optimal purchases of new and used consumer durables in an economy with heterogenous agents, idiosyncratic income risk and incomplete financial markets. Agents choose optimally between consuming nondurable and durable goods and accumulating a risk-free asset. The price of durable goods in the secondary market is determined endogenously, through market clearing. The model is used to study the impact of idiosyncratic unemployment risk and incomplete financial markets on market outcomes, and especially on the resale price of durables. I find that an unexpected shock to unemployment probabilities has the effect of lowering this price on impact. The mechanism behind this result is that following the increase in risk, the non-ownership option becomes more attractive to households, which rebalance their portfolio from durables towards liquid asset holdings. This decreases the demand for durable goods and exerts a downward pressure on their price.

Suggested Citation

  • Boris Chafwehé, 2017. "Durable Goods Markets in Heterogenous Agents Economies," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2017021, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  • Handle: RePEc:ctl:louvir:2017021
    as

    Download full text from publisher

    File URL: https://sites.uclouvain.be/econ/DP/IRES/2017021.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Christopher L. House & John V. Leahy, 2004. "An sS Model with Adverse Selection," Journal of Political Economy, University of Chicago Press, vol. 112(3), pages 581-614, June.
    2. Giulio Fella, 2014. "A generalized endogenous grid method for non-smooth and non-concave problems," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(2), pages 329-344, April.
    3. Alessandro Gavazza & Alessandro Lizzeri & Nikita Roketskiy, 2014. "A Quantitative Analysis of the Used-Car Market," American Economic Review, American Economic Association, vol. 104(11), pages 3668-3700, November.
    4. Eberly, Janice C, 1994. "Adjustment of Consumers' Durables Stocks: Evidence from Automobile Purchases," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 403-436, June.
    5. Ben S. Bernanke, 1984. "Permanent Income, Liquidity, and Expenditure on Automobiles: Evidence from Panel Data," The Quarterly Journal of Economics, Oxford University Press, vol. 99(3), pages 587-614.
    6. Dmitriy Stolyarov, 2002. "Turnover of Used Durables in a Stationary Equilibrium: Are Older Goods Traded More?," Journal of Political Economy, University of Chicago Press, vol. 110(6), pages 1390-1413, December.
    Full references (including those not matched with items on IDEAS)

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:ctl:louvir:2017021. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Virginie LEBLANC). General contact details of provider: http://edirc.repec.org/data/iruclbe.html .

    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.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.