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Adjustment of Consumers'durables Stocks: Evidence from Automobile Purchases

  • Eberly, J.C.

This paper tests an optimal (S, s) rule in household durable purchases and examines directly the resulting aggregate expenditure dynamics. The observed decision rule responds to income uncertainty and growth as predicted by an (S, s) model resulting from transactions costs. Tests against liquidity constraints find that about half the households purchase according to an optimal (S, s) rule. Aggregating the (S, s) rule over households produces a cross-section distribution of durables holdings. The empirical distribution is similar to that predicted theoretically, as is its response to aggregate shocks. Furthermore, simulations of aggregate expenditure based on the household distribution exhibit dynamics consistent with those observed in the 1980s. Copyright 1994 by University of Chicago Press.

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Paper provided by Wharton School - Weiss Center for International Financial Research in its series Weiss Center Working Papers with number 22-91.

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Length: 44 pages
Date of creation: 1990
Date of revision:
Handle: RePEc:fth:pennif:22-91
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