Non-durable Consumer Goods Research Articles

Housing Price Dispersion: An Empirical Investigation

The efficiency of a market is challenged when price dispersion occurs. Previous studies focused on non-durable consumption goods. This study extends the analysis to the case of residential property, whose transactions are dominated by a second-hand market with many potential buyers and sellers. We demonstrate that housing price dispersion exists, and the degree of dispersion changes systematically with some macroeconomic factors, though the second and the third moment of the price distribution react differently to the macroeconomic variables. Some directions for future research are suggested.

Do Homeowners Increase Consumption after the Last Mortgage Payment? An Alternative Test of the Permanent Income Hypothesis

The maturity date of a mortgage loan marks the end of monthly mortgage payments for homeowners. In the period after the last payment, homeowners experience an increase in their disposable income. Our study interprets this event as an anticipated increase in income, and tests whether households smooth consumption over the transition period as predicted by the rational expectation Life-Cycle/Permanent-Income Hypothesis. We find households do not alter nondurable goods consumption in the period following the last mortgage payment. Instead, they increase both financial savings and savings in durable goods such as housefurnishings and entertainment equipments in the year of the last mortgage payment.

Principais características do consumo de duráveis no Brasil e testes de separabilidade entre duráveis e não-duráveis

This paper studies the evolution of the consumption of durables in Brazil and tests the hypothesis of liquidity-constraints for the optimal decision of the representative agent. We also test whether consumption decisions on durable and non-durables are separable, which is critical in understanding consumption behavior and is assumed rather than tested in all previous papers investigating consumption in Brazil. Our empirical results suggest that a large proportion of consumers in Brazil face short-run liquidity constraints in the consumption of durables. We also find short-term restrictions involving the behavior of the consumption of non-durable goods, durable goods, and real income.

Wage shocks and consumption variability in Mexico during the 1990s

This paper presents evidence on the relationship between shocks to relative male wages and changes in household consumption in Mexico during the 1990s decade, which is a period characterized by high volatility. Apart from performing analysis of this type for Mexico for the first time, the paper has mainly two contributions. The first is the use of alternative data sources to construct instrumental variables for wages. The second is to examine differences across four consumption categories: nondurable goods, durable goods, education, and health. Our results for nondurable goods consumption reject the hypothesis that Mexican households are able to ensure idiosyncratic risk. For the comparisons across consumption categories, the conclusion is that households in Mexico tend to react to temporary shocks by contracting the consumption of goods that represents longer run investment in human capital, which makes them more vulnerable in the future.

On the Relationships between Real Consumption, Income, and Wealth

The existence of durable goods implies that the welfare flow from consumption cannot be directly associated with total consumption expenditures. As a result, tests of standard theories of consumption (such as the Permanent Income Hypothesis, or PIH) typically focus on nondurable goods and services. Specifically, these studies generally relate real consumption of nondurable goods and services to measures of real income and wealth, where the latter are deflated by a price index for total consumption expenditures. This paper demonstrates that this procedure is only valid under the assumption that real consumption of nondurables and services is a constant multiple of aggregate real consumption outlays - an assumption that represents a very poor description of U.S. data. The paper develops an alternative approach that is based on the observation that the ratio of these series has historically been stable in nominal terms, and uses this approach to examine two basic predictions of the PIH. We obtain significantly different results relative to the traditional approach.

Consumption, Durable Goods, and Transaction Costs

We study consumption of durable and nondurable goods when the durable good is subject to transaction costs. In the model, agents derive utility from a service flow of a durable good and a consumption flow of a nondurable good. The key feature of the model is the existence of a fixed transaction cost in the durable good market. The fixed cost induces an inaction region in the purchase of the durable good. More importantly, the inability to adjust the durable stock induces variation in consumption of the nondurable good over the inaction region. The variation is a function of the degree of complementarity between durable and nondurable goods in the period utility function, the rate of intertemporal substitution, and a precautionary motive induced by incomplete markets. We test the model using the PSID. Housing serves as the durable good. The data indicate an increase in consumption before moving to a smaller house and a decrease in consumption before moving to a larger house. This result is consistent with the model when there exists complementarity between the durable and nondurable good or when there is a strong precautionary effect.

Wage Shocks and Consumption Variability in Mexico During the 1990s

This paper presents evidence on the relationship between economic shocks to relative male wages and changes in household consumption in Mexico during the 1990s, which is a period characterized by high volatility. In addition to performing this type of analysis for Mexico for the first time, the paper makes two main contributions. The first is the use of alternative data sources to construct instrumental variables for wages. The second is to examine differences across four consumption categories: non-durable goods, durable goods, education and health. Our results for non-durable goods consumption reject the hypothesis that Mexican households are able to insure idiosyncratic risk. For the comparisons across consumption categories, the conclusion is that households in Mexico tend to react to temporary shocks by contracting the consumption of goods that represent longer-run investment in human capital, which makes them more vulnerable in the future.

Consumption, Durable Goods, and Transaction Costs

We study consumption of durable and nondurable goods when the durable good is subject to transaction costs. In the model, agents derive utility from a service flow of a durable good and a consumption flow of a nondurable good. The key feature of the model is the existence of a fixed transaction cost in the durable good market. The fixed cost induces an inaction region in the purchase of the durable good. More importantly, the inability to adjust the durable stock induces variation in consumption of the nondurable good over the inaction region. The variation is a function of the degree of complementarity between durable and nondurable goods in the period utility function, the rate of intertemporal substitution, and a precautionary motive induced by incomplete markets. We test the model using the PSID. Housing serves as the durable good. The data indicate an increase in consumption before moving to a smaller house and a decrease in consumption before moving to a larger house. This result is consistent with the model when there exists complementarity between the durable and nondurable good or when there is a strong precautionary effect.

On the Relationships between Real Consumption, Income, and Wealth

The existence of durable goods implies that the welfare flow from consumption cannot be directly associated with total consumption expenditures. As a result, tests of standard theories of consumption (such as the Permanent Income Hypothesis, or PIH) typically focus on nondurable goods and services. Specifically, these studies generally relate real consumption of nondurable goods and services to measures of real income and wealth, where the latter are deflated by a price index for total consumption expenditures. We demonstrate that this procedure is only valid under the assumption that real consumption of nondurables and services is a constant multiple of aggregate real consumption outlays--an assumption that represents a very poor description of U.S. data. We develop an alternative approach that is based on the observation that the ratio of these series has historically been stable in nominal terms, and use this approach to examine two basic predictions of the PIH. We obtain significantly different results relative to the traditional approach.

Effects of monetary variables on real output: sensitivity analysis

This paper uses Leamer's sensitivity test in a VAR framework and examines the robustness of the relationship between different monetary and output variables. Output variables at the aggregated level include GDP, consumption, and gross private investment. Disaggregated variables comprise components of consumption (durables, non-durables and services) and investment (business inventories, fixed residential, and fixed nonresidential). All aggregated variables are robustly Granger caused by M2, the federal funds rate and the federal funds 3-months treasury rate spread. At the disaggregated level, only consumption of durables is Granger caused by these variables. Consumption of services, business inventories, and non-residential fixed investment are only Granger caused by money supply variables, while consumption of non-durable goods and residential investment are Granger caused by interest rates and/or interest rate spreads only.

Hedging House Price Risk With Incomplete Markets

This paper solves a model of the optimal asset and consumption choices of a liquidity constrained investor who derives utility from the consumption of both non-durable consumption goods and housing. Using PSID labor income and house price data I estimate a large positive correlation between income shocks and house price shocks, and a large negative correlation between house prices and interest rates. I use these estimates to parameterize the model. Using the model I evaluate the effects of labor income, interest rate and house price risk on housing choices and investor welfare. Due to the dual role of housing as an asset and a source of consumption services, liquidity constraints are an important determinant of hedging demands.

Measuring Intertemporal Substitution: The Role of Durable Goods

In estimating, the intertemporal elasticity of substitution, Hall finds that, when one takes account of time aggregation, point estimates are small and not significantly different from zero. He concludes that the clasticity is unlikely to be much above 0.1 and may well be zero. Applying improved inference methods to an economic model similar to Hall's, Hansen and Singleton show that there is considerably less precision in the estimation. We argue that the model used by these authors is misspecified because the intratemporal substitution between nondurable consumption goods and durable consumption goods is ignored. We use a two‐step procedure that combines a cointegration approach to preference parameter estimation with generalized method of moments to take these effects into account. Our estimates for the intertemporal elasticity of substitution are positive and significantly different from zero, even when time aggregation is taken into account.

Intertemporal substitution and durable goods: long-run data

In this paper, we use long-run annual data to estimate the intertemporal elasticity of substitution while accounting for the intra-temporal substitution between nondurable consumption goods and durable consumption goods. We apply a two-step procedure that combines a cointegration approach to preference parameter estimation with Generalized Method of Moments.

PERSONAL SECTOR MONEY DEMAND IN THE UK

Nonparametric demand analysis is utilized to establish weakly separable subsets of monetary assets for the U.K. personal sector in the context of a utility function consisting of durable and nondurable consumption goods, services, leisure, and monetary assets. The admissible collections of assets are then combined using Divisia aggregation in order to produce monetary aggregates that are consistent with economic aggregation theory. The authors investigate the money demand properties of the aggregates and find relatively simple, stable long-run money-demand functions for the U.K. personal sector with well determined error correction dynamics. Copyright 1997 by Royal Economic Society.

Consumption and fiscal policy

This paper uses the life-cycle approach to derive an equilibrium intratemporal efficiency condition which relates the marginal utility of consumption of nondurable goods and services to the marginal utility of consumption of services from durable goods. Given this condition and the assumption that marginal utilities are affected by the level of public spending, a long-run relationship between components of private consumption and public expenditure is then postulated. The application of cointegration analysis to UK data supports the existence and uniqueness of such a long-run relationship, and estimates based on the error correction approach produce results which suggest that (i) a change in public spending has different effects on components of private consumption in the short-run, and (ii) the entire burden of long-run substitution falls on nondurable consumption.

Durable Consumption Goods and the Pattern of International Trade and Indebtedness in a Dynamic Ricardian Model

Constructing a two-country and two-commodity dynamic general equilibrium model a la Ricardo in which tradeable goods consist of durable and nondurable consumption goods, we show that the pattern of trade depends on comparative cost advantage and the pattern of international indebtedness depend on absolute cost advantage.

Habit Formation as a Resolution to the Equity Premium Puzzle: What Is in the Data, What Is Not

The consumption based asset pricing model of Lucas [14] defines a theoretical relationship between streams of consumption and equilibrium asset prices. Since data of both aggregate consumption and asset prices are available, theory can be tested. Empirical tests of Lucas model using standard time separable utility functions indicate mismatches between theory and data. For example, in GMM (Generalized Method of Moments) estimation of Hansen and Singleton [9], overidentifying constraints implied by model were rejected. Mehra and Prescott [16] demonstrated difficulty of explaining a particular statistic: theoretical expected equity premium (the yield differential between stocks and risk-free bonds) is much higher than observed one if a standard utility function is used. They called mismatch the equity premium puzzle. To improve performance of model, several authors have relaxed time-separability of preferences. In a stimulating paper, Constantinides [1] argued that equity premium puzzle can be resolved through assumption of The idea is that consumption in past reduces utility in present because it establishes habits. His model can match observed mean and variance of both equity premium and consumption growth rate. The match of low moments is consistent with bound tests of Heaton [11], Gallant, Hansen, and Tauchen [7], and Hansen and Jagannathan [10]. On other hand, GMM estimations using monthly aggregate consumption of nondurable goods and leisure by Eichenbaum, Hansen, and Singleton [3], and that using consumption of nondurable goods and durable goods by Dunn and Singleton [2] and Eichenbaum and Hansen [4], showed that if current utility depends on current and past consumption, then current utility increases in past consumption, i.e., consumption has durability, opposite of that implied by habit formation. A particularly strong result was obtained by Gallant and Tauchen [6]. They estimated a general form of utility functions with a general law of motion of data and found that source of time-non-separability is local durability. Since it is known that local durability

The demand for non-durable goods and endogenous labour supply

Cointegration procedures are used to estimate and test a model in which the demand for non-durable consumption goods depends on relative prices, the real wage rate and real ‘full income’. The estimated parameters are plausible, but the homogeneity (‘lack of money illusion’) condition is rejected.

House and barn; the wealth of farmers, 1795–1815

Analysis of 511 probate inventories from northwestern New Jersey in the period 1795–1815 forms the context within which to interpret the farm and household of Thomas Hamlin, a substantial farmer who died in 1810. Comparison of his standing in the community, based on church records and property, with the type of household goods indicates that he lived in a modestly comfortable fashion, which did not differ substantially from the life-styles of his neighbors. Having achieved a threshold of comfort, marked by beds and coarse tablewares, prosperous farmers like Thomas Hamlin seem to have chosen to invest in land and livestock as well as in enlarging the dwelling. Comparison of household goods with goods for sale in local stores, however, indicates that costume and augmentations to diet were significant consumer commodities that are not reflected in probate inventories, which, like tableware, are reflective of durable— as opposed to nondurable—consumer goods.

A note on the demand for non-durable goods

This note applies the AIDS to a model of the demand for non-durable consumption goods in which consumption depends on relative prices, the wage rate, and “full income.” The empirical results are consistent with the predictions of the theory.