Inflation Stabilization and the Consumption of Durable Goods
38 Pages Posted: 30 Aug 1998
There are 2 versions of this paper
Inflation Stabilization and the Consumption of Durable Goods
Date Written: March 1997
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 which induces many consumers to bring forward their purchases of durable goods, thus generating an aggregate consumption boom. Since most consumers replenish their stock of durable goods at the beginning of the program, a later slowdown follows.
JEL Classification: F41
Suggested Citation: Suggested Citation
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