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The Role of Durables Replacement and Second‐Hand Markets in a Business‐Cycle Model

Hyunseung Oh

Journal of Money, Credit and Banking, 2019, vol. 51, issue 4, 761-786

Abstract: Transactions of used durables are large and cyclical, but their interaction with purchases of new durables has been neglected in business‐cycle studies. I fill this gap by introducing a new business‐cycle model of consumer durables where households resell their goods on the second‐hand market and the production of new durables is affected by the supply of used goods. The model delivers three conclusions: Markups are smaller for goods that are more durable and more frequently replaced; markups are countercyclical for durables, resolving the comovement puzzle of Barsky, House, and Kimball (2007); and procyclical replacement demand amplifies durables spending.

Date: 2019
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Handle: RePEc:wly:jmoncb:v:51:y:2019:i:4:p:761-786