Forward Guidance and Durable Goods Demand

36 Pages Posted: 9 Nov 2020 Last revised: 10 Mar 2022

See all articles by Alisdair McKay

Alisdair McKay

Federal Reserve Banks - Federal Reserve Bank of Minneapolis

Johannes Wieland

University of California, San Diego (UCSD) - Department of Economics

Date Written: November 2020

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.

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Suggested Citation

McKay, Alisdair and Wieland, Johannes, Forward Guidance and Durable Goods Demand (November 2020). NBER Working Paper No. w28066, Available at SSRN: https://ssrn.com/abstract=3727142

Alisdair McKay (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Minneapolis ( email )

Johannes Wieland

University of California, San Diego (UCSD) - Department of Economics ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States

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