IDEAS home Printed from
   My bibliography  Save this paper

Capital, Credit Constraints and the Comovement between Consumer Durables and Nondurables




Evidence indicates that consumer durables are more flexibly priced than nondurable goods and services. In otherwise standard two-sector neoclassical sticky-price models with flexible durable prices, following monetary tightening, nondurables decrease but consumer durables increase. Friction in lending between households can resolve the comovement problem if durable prices are sticky. However, if durable prices are flexible, friction in lending fails to generate joint decline. This paper resolves the co-movement problem by adding capital into a model with flexible durable prices and friction in lending. When capital is needed in production, monetary tightening reduces the relative price of durables which induces investment and decreases firms’ real profits in the short run. Due to fewer profits remitted from firms, savers have a lower disposable income and cannot increase expenditures on consumer durables as much as otherwise. As a consequence, aggregate consumer durables decrease and there is a joint decline of nondurables and consumer durables.

Suggested Citation

  • Been-Lon Chen & Shian-Yu Liao, 2013. "Capital, Credit Constraints and the Comovement between Consumer Durables and Nondurables," IEAS Working Paper : academic research 13-A011, Institute of Economics, Academia Sinica, Taipei, Taiwan.
  • Handle: RePEc:sin:wpaper:13-a011

    Download full text from publisher

    File URL:
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    1. Munechika Katayama & Kwang Hwan Kim, 2010. "Intertemporal Substitution and Sectoral Comovement in a Sticky Price Model," Departmental Working Papers 2010-01, Department of Economics, Louisiana State University.
    2. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
    3. Bayoumi, Tamim A, 1993. "Financial Deregulation and Consumption in the United Kingdom," The Review of Economics and Statistics, MIT Press, vol. 75(3), pages 536-539, August.
    4. Bouakez, Hafedh & Cardia, Emanuela & Ruge-Murcia, Francisco J., 2011. "Durable goods, inter-sectoral linkages and monetary policy," Journal of Economic Dynamics and Control, Elsevier, vol. 35(5), pages 730-745, May.
    5. Erceg, Christopher & Levin, Andrew, 2006. "Optimal monetary policy with durable consumption goods," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1341-1359, October.
    6. Jappelli, Tullio & Pagano, Marco, 1989. "Consumption and Capital Market Imperfections: An International Comparison," American Economic Review, American Economic Association, vol. 79(5), pages 1088-1105, December.
    7. Monacelli, Tommaso, 2009. "New Keynesian models, durable goods, and collateral constraints," Journal of Monetary Economics, Elsevier, vol. 56(2), pages 242-254, March.
    8. Robert B. Barsky & Christopher L. House & Miles S. Kimball, 2007. "Sticky-Price Models and Durable Goods," American Economic Review, American Economic Association, vol. 97(3), pages 984-998, June.
    9. Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
    10. Daron Acemoglu & Veronica Guerrieri, 2008. "Capital Deepening and Nonbalanced Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 116(3), pages 467-498, June.
    11. Nao Sudo, 2012. "Sectoral Comovement, Monetary Policy Shocks, and Input–Output Structure," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(6), pages 1225-1244, September.
    12. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
    13. Robert Barsky & Christopher House & Miles Kimball, 2003. "Do Flexible Durable Goods Prices Undermine Sticky Price Models?," Macroeconomics 0302003, EconWPA.
    14. Carlstrom, Charles T. & Fuerst, Timothy S., 2010. "Nominal Rigidities, Residential Investment, And Adjustment Costs," Macroeconomic Dynamics, Cambridge University Press, vol. 14(01), pages 136-148, February.
    15. Sterk, Vincent, 2010. "Credit frictions and the comovement between durable and non-durable consumption," Journal of Monetary Economics, Elsevier, vol. 57(2), pages 217-225, March.
    16. Jermann, Urban J., 1998. "Asset pricing in production economies," Journal of Monetary Economics, Elsevier, vol. 41(2), pages 257-275, April.
    17. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    18. Kevin x.d. Huang & Engin Volkan & M. ege Yazgan, 2013. "Nonhomothetic Preferences with Habit Formation in Nondurable and Durable Consumption: Implications for Sectoral Comovement," Vanderbilt University Department of Economics Working Papers 13-00002, Vanderbilt University Department of Economics.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Di Pace, Federico & Hertweck, Matthias S., 2012. "Labour Market Frictions, Monetary Policy, and Durable Goods," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62052, Verein für Socialpolitik / German Economic Association.
    2. repec:gam:jsusta:v:9:y:2017:i:9:p:1563-:d:110715 is not listed on IDEAS
    3. Cantelmo, Alessandro & Melina, Giovanni, 2018. "Monetary policy and the relative price of durable goods," Journal of Economic Dynamics and Control, Elsevier, vol. 86(C), pages 1-48.
    4. Bee-Lon Chen & Shian-Yu Liao, 2017. "Durable Goods, Investment Shocks and the Comovement Problem," IEAS Working Paper : academic research 17-A007, Institute of Economics, Academia Sinica, Taipei, Taiwan.
    5. Sayed Mehdi Naji Esfahani, 2015. "Co-movement Puzzle and the Overlapping Roles of Consumer Durables and Capital," EcoMod2015 8681, EcoMod.

    More about this item


    Credit constraints; capital; consumer durables; nondurables; sticky price; comovement;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sin:wpaper:13-a011. 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: (HsiaoyunLiu). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.