TY  - JOUR
AU  - Adda,Jerome
AU  - Cooper,Russell
TI  - The Dynamics of Car Sales: A Discrete Choice Approach
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7785
PY  - 2000
Y2  - July 2000
UR  - http://www.nber.org/papers/w7785
L1  - http://www.nber.org/papers/w7785.pdf
N1  - Author contact info:
Jerome Adda
Department of Economics
European University Institute
Villa San Paolo
Via della Piazzuola 43
50133 Firenze 
Tel: +390554685955
E-Mail: j.adda@ucl.ac.uk

Russell Cooper
Department of Economics
The Pennsylvania State University
611 Kern
State College, PA 16802
E-Mail: russellcoop@gmail.com
AB  - Mankiw [1982] explores the Permanent Income Hypothesis implication that durable expenditures follow an ARMA(1,1) representation.  He finds that durable expenditures are represented by an AR(1) process which implies that the rate of depreciation of durables, under the PIH model, is 100%.  This finding presents a puzzle.  Our paper builds on earlier work which attempts to explain this puzzle by considering the aggregation of the discrete dynamic choices of heterogeneous households.  We implement this approach by estimating a dynamic discrete choice model of car replacement.  We find that through aggregation we can explain both the AR and MA components of Mankiw's results.  Further we find that our model is able to match a VAR representation of car sales, prices and income.  We find that most of the variation in car sales is due to shocks which influence the replacement probability.
ER  -