The Life-Cycle Permanent-Income Model and Consumer Durables

Avner Bar-ilan and Alan Blinder

No 2149, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper presents an extension of the life-cycle permanent-income model of consumption to the case of a durable good whose purchase involves lumpy trans- actions costs. Where individual behavior is concerned, the implications of the model are different in some respects from those of standard consumption theory. Specifically, rather than choose an optimal path for the service flow from durables, the optimizing consumer will choose an optimal range and try to keep his service flow inside that range. The dynamics implied by this behavior is different from that of the stock adjustment model. Properties of aggregate durables consumption are derived by explicit aggregation. In particular, it is shown that expenditures on durables display very large short-run elasticity to changes in permanent income. Empirical tests of the sort suggested by Hall (1978) generally produce results that are in line with the predictions of the theory.

Date: 1987-02
Note: EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published as Annales d'Economie et de Statistique No. 9,,, pp.71-91, Jan-March 1988
Published as Avner Bar-Ilan & Alan S. Blinder, 1988. "The Life Cycle Permanent-Income Model and Consumer Durables," Annals of Economics and Statistics, GENES, issue 9, pages 71-91.

Downloads: (external link)
http://www.nber.org/papers/w2149.pdf (application/pdf)

Related works:
Journal Article: The Life Cycle Permanent-Income Model and Consumer Durables (1988)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:2149

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w2149

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().