The Timing of Purchases and Aggregate Fluctuations

John Leahy and Joseph Zeira

No 7672, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper analyzes how the decision of when to buy a durable good affects both non-durable consumption and business cycle dynamics. At the individual level, we show that the timing of durable goods purchases plays an important role in smoothing consumption over time. In the benchmark case, the time at which the agent purchases the durable good is the only variable that reacts to changes in wealth, while other variables, such as the consumption of non-durables or the amount of the durable that the individual purchases, remain unchanged. At the aggregate level, we show that timing decisions can serve as a mechanism for the amplification and propagation of aggregate shocks. A decline in wealth causes individuals to delay their durable goods purchases which reduces demand dramatically for some time.

JEL-codes: E21 E32 (search for similar items in EconPapers)
Date: 2000-04
New Economics Papers: this item is included in nep-dge
Note: EFG ME
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Citations: View citations in EconPapers (9)

Published as "Sectoral Shocks, Learning, and Aggregate Fluctuations", Review of Economic Studies, Vol. 60, no. 205 (1993): 777-794.

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Journal Article: The Timing of Purchases and Aggregate Fluctuations (2005)
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