Intertemporal Substitution and Durable Goods: An Empirical Analysis

Yvon Fauvel and Lucie Samson

Canadian Journal of Economics, 1991, vol. 24, issue 1, 192-205

Abstract: The hypothesis that large fluctuations in observed quantities are induced by intertemporal substitution is frequently used in modern macroeconomics. One channel through which fluctuations in real rates of return on savings can impact on the economy is via their influence on the purchases of durable goods by consumers. This paper proposes and estimates a model of an optimizing agent who is faced with the problem of allocating intertemporally his consumption of nondurable and durable goods when confronted with a fluctuating rate of return. Expectations are assumed to be formed rationally. The authors' analysis of Canadian data is favorable to this class of models.

Date: 1991
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