The dynamics of durable goods markets: rational expectations and sticky prices

Carlos Ocaña Pérez de Tudela

UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía

Abstract: This paper studies price dynamics in a durable good market under the assumption that consumers have rational expectations on future prices. For a wide variety of expectations, optimal consumption plans result in sticky-price demand functions. Market dynamics are characterized by intertemporal price discrimination which provides a possible explanation for the declining path of price observed in many "young" industries. Unexpected shocks on demand result in price overshooting, while unexpected supplyshocks have the opposite effect on price.

Keywords: Durable; Goods; Rational; Expectations; Sticky; Prices; Interıtemporal; Overshooting (search for similar items in EconPapers)
Date: 1991-03
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Persistent link: https://EconPapers.repec.org/RePEc:cte:werepe:2797

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