The Life-Cycle Permanent-Income Model and Consumer Durables / Avner Bar-Ilan, Alan S. Blinder.

By:

Bar-Ilan, Avner

Contributor(s):

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w2149.Publication details: Cambridge, Mass. National Bureau of Economic Research 1987.Description: 1 online resource: illustrations (black and white)Online resources:

Available additional physical forms:

Hardcopy version available to institutional subscribers

Abstract: This paper presents an extension of the life-cycle permanent-income model of consumption to the case of a durable good whose purchase involves lumpy trans- actions costs. Where individual behavior is concerned, the implications of the model are different in some respects from those of standard consumption theory. Specifically, rather than choose an optimal path for the service flow from durables, the optimizing consumer will choose an optimal range and try to keep his service flow inside that range. The dynamics implied by this behavior is different from that of the stock adjustment model. Properties of aggregate durables consumption are derived by explicit aggregation. In particular, it is shown that expenditures on durables display very large short-run elasticity to changes in permanent income. Empirical tests of the sort suggested by Hall (1978) generally produce results that are in line with the predictions of the theory.

Tags from this library: No tags from this library for this title. Log in to add tags.

Average rating: 0.0 (0 votes)

Holdings
Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w2149 (Browse shelf(Opens below))	Not For Loan

Total holds: 0

Collection: Colección NBER Close shelf browser (Hides shelf browser)

Previous	No cover image available	No cover image available	No cover image available	No cover image available	No cover image available	No cover image available	No cover image available	Next
Previous	nber w21487 Labor-Force Heterogeneity and Asset Prices: the Importance of Skilled Labor /	nber w21488 Multilateral Trade Bargaining: A First Look at the GATT Bargaining Records /	nber w21489 Conflicts of Interest and the Realtor Commission Puzzle /	nber w2149 The Life-Cycle Permanent-Income Model and Consumer Durables /	nber w21490 Scraped Data and Sticky Prices /	nber w21491 The Pricing of Short-Term market Risk: Evidence from Weekly Options /	nber w21492 Fiscal Rules and Discretion in a World Economy /	Next

February 1987.

This paper presents an extension of the life-cycle permanent-income model of consumption to the case of a durable good whose purchase involves lumpy trans- actions costs. Where individual behavior is concerned, the implications of the model are different in some respects from those of standard consumption theory. Specifically, rather than choose an optimal path for the service flow from durables, the optimizing consumer will choose an optimal range and try to keep his service flow inside that range. The dynamics implied by this behavior is different from that of the stock adjustment model. Properties of aggregate durables consumption are derived by explicit aggregation. In particular, it is shown that expenditures on durables display very large short-run elasticity to changes in permanent income. Empirical tests of the sort suggested by Hall (1978) generally produce results that are in line with the predictions of the theory.