Inflation Stabilization and the Consumption of Durable Goods

Jose De Gregorio, Pablo Guidotti and Carlos A. Végh

No 26, Documentos de Trabajo from Centro de Economía Aplicada, Universidad de Chile

Abstract: Exchange rate-based stabilizations in chronic-inflation countries have often been characterized by an initial consumption boom (which is most evident in the behavior of durable goods) followed by a later contraction. This paper provides an explanation for such a boom-recession cycle based on the timing of purchases of durable goods. The initial fall in inflation results in a wealth effect wich induces many consumers to bring forward their consumption boom. Since most consumers replenish their stock of durable goods at the beginning of the program, a later slowdown follows.

Date: 1998
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Journal Article: Inflation Stabilisation and the Consumption of Durable Goods (1998)
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Persistent link: https://EconPapers.repec.org/RePEc:edj:ceauch:26

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