Slow Information Diffusion and the Inertial Behavior of Durable Consumption

Yulei Luo (), Jun Nie and Eric Young

MPRA Paper from University Library of Munich, Germany

Abstract: This paper studies the aggregate dynamics of durable and nondurable consumption under slow information diffusion (SID) due to noisy observations and learning within the permanent income framework. We show that SID can significantly improve the model’s predictions on the joint behavior of income, durable consumption, and nondurable consumption at the aggregate level. Specifically, we find that SID can significantly improve the model’s predictions for: (i) smoothness in durable and nondurable consumption, (ii) autocorrelation of durable consumption, and (iii) contemporaneous correlation between durable and nondurable consumption. Furthermore, we discuss that incorporating a fixed cost into our SID model does a better job of reproducing the infrequent adjustments of durable consumption at the individual level and the slow adjustments at the aggregate level.

Keywords: Durability; Slow Learning; Slow Information Diffusion; Infrequent Adjustments; Consumption Stickiness (search for similar items in EconPapers)
JEL-codes: D8 D81 E2 E21 (search for similar items in EconPapers)
Date: 2014-03
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: SLOW INFORMATION DIFFUSION AND THE INERTIAL BEHAVIOR OF DURABLE CONSUMPTION (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:54089

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