Fluctuating risk in an aggregated Ss-model
Using U.S. data it is shown that as the stock market goes into a period of high volatility, nondurables consumption is unaffected but durables consumption falls substantially. It is argued that a plausible explanation for this is that consumers face irreversibilities when adjusting their durables stock. They will thus apply Ss-type rules with bandwidths with widths that vary over time as in Hassler (1996). To quantify the aggregate implications of such behavior an aggregated irreversible investment model for consumer durables is estimated on U.S. It is found that a shift to higher risk leads to a simultaneous widening of individual Ss-bands which causes demand to fall substantially. This effect diminishes over time but is substantial also after a year.
|Date of creation:||1996|
|Contact details of provider:|| Postal: 90 Hennepin Avenue, P.O. Box 291, Minneapolis, MN 55480-0291|
Phone: (612) 204-5000
Web page: http://minneapolisfed.org/
More information through EDIRC
|Order Information:|| Web: http://www.minneapolisfed.org/pubs/ Email: |
When requesting a correction, please mention this item's handle: RePEc:fip:fedmem:113. 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: (Janelle Ruswick)
If references are entirely missing, you can add them using this form.