Durable goods and consumer behavior with liquidity constraints

Abstract

AbstractThis paper presents an integrated model of intratemporal demand and intertemporal consumption, with allowance for durable goods and liquidity constraints. Demand equations for non‐durable and durable goods with the user cost of durable goods are jointly estimated with a consumption Euler equation incorporating liquidity constraints for Norwegian consumers from 1978 to 2018. Results show that demand analyses ignoring durable goods lead to a significant bias in the elasticities of non‐durable goods. Norwegian consumers are found to be impatient, with low risk aversion. There is weak evidence for liquidity constraints in consumption. No strong evidence exists for intertemporal substitution in consumption, but a considerable effect of uncertainty is found in durable consumption.