Adjustment of Consumers' Durables Stocks: Evidence from Automobile Purchases

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 c...

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Bibliographic Details
Published in:The Journal of political economy 1994-06, Vol.102 (3), p.403-436
Main Author: Eberly, Janice C.
Format: Article
Language:English
Subjects:
Aggregate expenditures
Aggregate income
Automobile sales
Automobiles
Consumer behavior
Consumer behaviour
Durable goods
Economic models
Economic Policy
Economic theory
Economics
Ergodic theory
Expenditure
Expenditures
Household expenditure
Households
Income estimates
Liquidity
Microeconomics
Political economy
Statistical analysis
Studies
Transaction costs
Wealth
Citations: Items that cite this one
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Summary: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.
ISSN:0022-3808
1537-534X
DOI:10.1086/261940