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Forward Guidance and Durable Goods Demand

Alisdair McKay () and Johannes Wieland ()

No 28066, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Durable goods attenuate the power of forward guidance. The extensive and intensive margins of durable goods demand are both more sensitive to the contemporaneous user cost than to future user costs. Changes in the contemporaneous real interest rate directly affect the contemporaneous user cost and durable demand, whereas promises of low future real interest rates have weaker effects through equilibrium price changes. Quantitatively, reducing the real interest rate one year from now increases output by only forty percent as much as reducing the real interest rate today. Our results are little affected by the maturity of financial assets that finance durable purchases.

JEL-codes: E21 E22 E43 E52 E58 (search for similar items in EconPapers)
Date: 2020-11
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Note: EFG ME
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Published as Alisdair McKay & Johannes F. Wieland, 2022. "Forward Guidance and Durable Goods Demand," American Economic Review: Insights, vol 4(1), pages 106-122.

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