NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Durable Goods: An Explanation for Their Slow Adjustment

Ricardo J. Caballero

NBER Working Paper No. 3748
Issued in June 1991
NBER Program(s):   EFG

Aggregate expenditure on durable goods responds too slowly to wealth and other aggregate innovations to be consistent with the simplest frictionless version of PIH (permanent income hypothesis). In this paper I present a model of aggregate expenditure on durab1es that builds up from the lumpy nature of microeconomic purchases, and provide evidence supporting its contribution to the resolution of the ?slowness? puzzle. The paper also contains several new results on the problem of dynamic aggregation of stochastically heterogeneous units. In particular, I provide a simple characterization of the effects of heterogeneity and microeconomic lumpiness on aggregate dynamics.

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Document Object Identifier (DOI): 10.3386/w3748

Published: Journal of Political Economy, April 1993

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