Consumer Durables and the Real Interest Rate

N. Gregory Mankiw

NBER Working Paper No. 1148 (Also Reprint No. r0666)
Issued in December 1985
NBER Program(s):   EFG

One important channel through which real interest rates affect aggregate demand is consumer expenditure on durable goods. This paper examines empirically the link between interest rates and consumer durables. Solving for the decision rule relating income and interest rates to consumer demand is an intractable task. This paper avoids this problem by examining the first-order conditions necessary for maximization by the representative consumer. Structural parameters of there presentative utility function are thus recovered. The estimated model suggests that expenditure on consumer durables is far more sensitive to changes in the interest rate than is expenditure on nondurables and services.

(334 K)

Published: Mankiw, N. Gregory. "Consumer Durables and the Real Interest Rate," Review of Economics and Statistics, Vol. 67, No. 3, August 1985, pp. 353-362.

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