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Demand For Durable Goods, Nondurable Goods And Services

  • John J. Heim


    (Department of Economics, Rensselaer Polytechnic Institute, Troy, NY 12180-3590, USA)

Separate macroeconomic consumption demand functions are developed and tested for (1) durable goods, (2) nondurable goods and (3) services. These are compared for consistency with econometric studies of total consumer demand. Key factors determining demand for these goods are tested using U.S. 1960 - 2000 data. The econometric method used was 2SLS with heteroskedasticity controls. Data in first differences are used to reduce multicollinearity, non stationarity and autocorrelation. The models explain 94% of the variance in demand for consumer durables, 86% of demand for nondurable consumer goods and 81% of services demand. Demand for durables like autos and appliances, was found to be driven by the disposable income, wealth, the exchange rate, availability of consumer credit, interest rates on consumer credit, demand for new housing, which affects appliance demand, and population growth. Demand for nondurable goods, such as groceries and clothes, was driven by the same factors, except for new housing demand and the exchange rate. Demand for consumer services such as laundry, restaurant, and entertainment services was found to be related to disposable income, wealth, and population growth, but not related to consumer credit availability, or consumer credit interest rates. However, mortgage interest rates paid by households did seem to affect the demand for services.

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Paper provided by Rensselaer Polytechnic Institute, Department of Economics in its series Rensselaer Working Papers in Economics with number 0906.

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Date of creation: Aug 2009
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Handle: RePEc:rpi:rpiwpe:0906
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  1. John J. Heim, 2008. "The Consumption Function," Rensselaer Working Papers in Economics 0805, Rensselaer Polytechnic Institute, Department of Economics.
  2. John J. Heim, 2009. "A MethodFor Separating Iincome & Substitution Effects Of Exchange Rate Changes On Aggregate Demand," Rensselaer Working Papers in Economics 0901, Rensselaer Polytechnic Institute, Department of Economics.
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