Durable Goods Cycles

Andrew Caplin, John Leahy

NBER Working Paper No. 6987
Issued in February 1999
NBER Program(s):   EFG

We show that a straight forward approximation of the distribution of durable goods holdings gives rise to a tractable equilibrium (S,s) model of durable demand. We analyze both competitive and monopoly supply. We show that equilibrium interactions lead to elongated impulse responses in demand, to procyclical markups in response to demand shocks, and to countercyclical markups in response to cost shocks.

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