Journal Article

The Timing of Purchases and Aggregate Fluctuations

John V. Leahy and Joseph Zeira

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 72, issue 4, pages 1127-1151
Published in print October 2005 | ISSN: 0034-6527
Published online October 2005 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/0034-6527.00364
The Timing of Purchases and Aggregate Fluctuations

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  • Household Behaviour and Family Economics
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We study the cyclical effects of the timing of durable goods purchases in a general equilibrium model in which both durable and non-durable goods are consumed and the durable good is lumpy. At the microeconomic level, the timing of durable goods purchases supplies some insulation for nondurable consumption over the cycle. At the macroeconomic level, the timing decisions tend to amplify and propagate wealth and income shocks. Our model also allows for endogenous price determination. When the price of the durable changes due to inflexibility of workers between sectors, the effect of adverse shocks is even stronger and longer.

Keywords: D12; D91

Journal Article.  13419 words.  Illustrated.

Subjects: Household Behaviour and Family Economics ; Intertemporal Choice and Growth

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