The Timing of Purchases and Aggregate Fluctuations

32 Pages Posted: 21 May 2000 Last revised: 19 Dec 2022

See all articles by John V. Leahy

John V. Leahy

New York University (NYU) - Department of Economics; National Bureau of Economic Research (NBER)

Joseph Zeira

Hebrew University of Jerusalem - Department of Economics; Centre for Economic Policy Research (CEPR); LUISS Guido Carli, DPTEA

Date Written: April 2000

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.

Suggested Citation

Leahy, John V. and Zeira, Joseph, The Timing of Purchases and Aggregate Fluctuations (April 2000). NBER Working Paper No. w7672, Available at SSRN: https://ssrn.com/abstract=228147

John V. Leahy (Contact Author)

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Joseph Zeira

Hebrew University of Jerusalem - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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LUISS Guido Carli, DPTEA ( email )

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Italy

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