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Variability of Durable and Nondurable Consumption: Evidence for Six O.E.C.D. Countries

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  • Gali, J.

Abstract

The author estimates consumption variability ratios for both durable and nondurable consumption using data for six OECD countries. His methodology, which relies on a long-run restriction implied by the consumer's intertemporal budget constraint, overcomes many of the problems inherent to previous approaches. Some important departures from the permanent income model emerge: (1) nondurable consumption shows mild excess smoothness in the United States and Italy, and mild excess volatility in Japan and France, and (2) durable consumption shows extreme excess smoothness in all countries. Alternative factors capable of generating the differences in volatility across types of goods are discussed. Copyright 1993 by MIT Press.
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Suggested Citation

  • Gali, J., 1992. "Variability of Durable and Nondurable Consumption: Evidence for Six O.E.C.D. Countries," Papers 92-06, Columbia - Graduate School of Business.
  • Handle: RePEc:fth:colubu:92-06
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    1. Chiappori, Pierre-Andre & Geoffard, Pierre-Yves & Guesnerie, Roger, 1992. "Sunspot Fluctuations around a Steady State: The Case of Multidimensional, One-Step Forward Looking Economic Models," Econometrica, Econometric Society, vol. 60(5), pages 1097-1126, September.
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    6. Richard Startz, 1989. "Monopolistic Competition as a Foundation for Keynesian Macroeconomic Models," The Quarterly Journal of Economics, Oxford University Press, vol. 104(4), pages 737-752.
    7. Mankiw, N. Gregory, 1988. "Imperfect competition and the Keynesian cross," Economics Letters, Elsevier, vol. 26(1), pages 7-13.
    8. Domowitz, Ian & Hubbard, R Glenn & Petersen, Bruce C, 1988. "Market Structure and Cyclical Fluctuations in U.S. Manufacturing," The Review of Economics and Statistics, MIT Press, vol. 70(1), pages 55-66, February.
    9. James Peck & Karl Shell, 1991. "Market Uncertainty: Correlated and Sunspot Equilibria in Imperfectly Competitive Economies," Review of Economic Studies, Oxford University Press, vol. 58(5), pages 1011-1029.
    10. Nobuhiro Kiyotaki, 1988. "Multiple Expectational Equilibria Under Monopolistic Competition," The Quarterly Journal of Economics, Oxford University Press, vol. 103(4), pages 695-713.
    11. Azariadis, Costas, 1981. "Self-fulfilling prophecies," Journal of Economic Theory, Elsevier, vol. 25(3), pages 380-396, December.
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    Cited by:

    1. Kwamie Dunbar, 2008. "The Impact of the FOMC's Monetary Policy Actions on the growth of Credit Risk: the Monetary Policy - Liquidity Paradox," Working papers 2008-05, University of Connecticut, Department of Economics.
    2. 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.
    3. Erik Hjalmarsson & Par Osterholm, 2007. "A residual-based cointegration test for near unit root variables," International Finance Discussion Papers 907, Board of Governors of the Federal Reserve System (U.S.).
    4. Christopher J. Erceg & Andrew T. Levin, 2002. "Optimal monetary policy with durable and non-durable goods," International Finance Discussion Papers 748, Board of Governors of the Federal Reserve System (U.S.).
    5. International Monetary Fund, 2011. "Business Cycles in Emerging Markets; The Role of Durable Goods and Financial Frictions," IMF Working Papers 11/133, International Monetary Fund.
    6. Álvarez-Parra, Fernando & Brandao-Marques, Luis & Toledo, Manuel, 2013. "Durable goods, financial frictions, and business cycles in emerging economies," Journal of Monetary Economics, Elsevier, vol. 60(6), pages 720-736.
    7. Engel, Charles & Wang, Jian, 2007. "International trade in durable goods: understanding volatility, cyclicality, and elastics," Globalization and Monetary Policy Institute Working Paper 03, Federal Reserve Bank of Dallas.
    8. Timo Koivumäki, 1996. "Permanent income hypothesis and variability of consumption," Finnish Economic Papers, Finnish Economic Association, vol. 9(2), pages 144-154, Autumn.

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    Keywords

    consumption;

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