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Flexible (S,s) Bands, Uncertainty, and Aggregate Consumer Durables


  • Janice C. Eberly


Recent work in macroeconomics has suggested that (S,s) rules are a useful characterization of household purchases of durable goods, and that they provide a basis for expenditure dynamics consistent with those observed in aggregate data. The purpose of this paper is to determine whether a flexible (S,s) rule, that is, an inaction range that varies over time, provides a more complete characterization of the aggregate data. The results suggest that not only does a flexible rule bring additional explanatory power, but the manner in which the rule implicitly changes over time is highly cyclical and correlated with changes in financial volatility over the business cycle. These results provide an economic structure for the observations that durables purchases contract when consumer uncertainty increases.

Suggested Citation

  • Janice C. Eberly, "undated". "Flexible (S,s) Bands, Uncertainty, and Aggregate Consumer Durables," Rodney L. White Center for Financial Research Working Papers 7-92, Wharton School Rodney L. White Center for Financial Research.
  • Handle: RePEc:fth:pennfi:7-92

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    References listed on IDEAS

    1. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
    2. Cecchetti, Stephen G. & Lam, Pok-sang & Mark, Nelson C., 1993. "The equity premium and the risk-free rate : Matching the moments," Journal of Monetary Economics, Elsevier, vol. 31(1), pages 21-45, February.
    3. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-384, March.
    4. Weil, Philippe, 1989. "The equity premium puzzle and the risk-free rate puzzle," Journal of Monetary Economics, Elsevier, vol. 24(3), pages 401-421, November.
    5. Cecchetti, Stephen G & Lam, Pok-sang & Mark, Nelson C, 1990. "Mean Reversion in Equilibrium Asset Prices," American Economic Review, American Economic Association, vol. 80(3), pages 398-418, June.
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