CONSUMER DEMAND, CONSUMPTION, AND ASSET PRICING: AN INTEGRATED ANALYSIS WITH INTERTEMPORAL TWO-STAGE BUDGETING

2019 ◽  
pp. 1-47
Author(s):  
H. Youn Kim ◽  
Keith R. Mclaren ◽  
K. K. Gary Wong
Keyword(s):  
Asset Pricing ◽  
Durable Goods ◽  
Liquidity Constraints ◽  
Relative Price ◽  
Adjustment Cost ◽  
Integrated Analysis ◽  
Two Stage ◽  
Consumption Growth ◽  
Nondurable Goods ◽  
Demand Functions

This paper integrates seemingly disjoint studies on consumer behavior in micro and macroanalyses via an intertemporal two-stage budgeting procedure with durable goods and liquidity constraints. The model specifies an indirect utility function as a function of nondurable consumption, commodity (nondurables) prices, and durables stock, and derives the demand functions for nondurable goods. A demand function for durable goods is derived in an adjustment cost framework. The consumption growth equation accounts for relative price effects with precautionary saving, durables stock, and liquidity constraints. The stochastic discount factor is approximated by a time-varying linear function of nondurable consumption growth, commodity price growth, durables stock growth, and disposable income growth. The demand functions for six nondurable goods and services are jointly estimated with the Euler equations for bonds, stocks, and durable goods with allowance for liquidity constraints, using US data. Estimation provides new findings for intertemporal consumption and a multifactor consumption-based capital asset pricing model.

scholarly journals A Model of Housing in the Presence of Adjustment Costs: A Structural Interpretation of Habit Persistence

2008 ◽  
Vol 98 (1) ◽  
pp. 474-495 ◽  
Author(s):  
Marjorie Flavin ◽  
Shinobu Nakagawa
Keyword(s):  
Asset Pricing ◽  
Housing Price ◽  
Adjustment Costs ◽  
Portfolio Allocation ◽  
Relative Price ◽  
Adjustment Cost ◽  
Price Risk ◽  
Financial Assets ◽  
Habit Persistence ◽  
Over Time

The paper provides a model of household consumption and portfolio allocation which incorporates housing as both a consumption good and a component of wealth. Household utility depends, possibly nonseparably, on two goods: nondurable consumption, which is costlessly adjustable, and housing, which is subject to a nonconvex adjustment cost. Households face housing price risk in the sense that the relative price of housing varies over time, and can invest in a wide variety of financial assets in addition to housing. This single, reasonably tractable, model generates testable implications for portfolio allocation, risk aversion, asset pricing, and the dynamics of nondurable consumption. (JEL D14, G11, R21)

scholarly journals Precautionary Saving and Consumption Fluctuations

2005 ◽  
Vol 95 (4) ◽  
pp. 1119-1143 ◽  
Author(s):  
Jonathan A Parker ◽  
Bruce Preston
Keyword(s):  
The United States ◽  
Precautionary Saving ◽  
Consumption Growth ◽  
Average Growth ◽  
Household Level ◽  
Nondurable Goods ◽  
Consumption Expenditures ◽  
New Information ◽  
Level Data ◽  
Consumption Fluctuations

This paper uses the consumption Euler equation to derive a decomposition of consumption growth into four sources. These four sources are new information, and three sources of predictable consumption growth: intertemporal substitution, changes in the preferences for consumption, and incomplete markets for consumption insurance. Using household-level data, we implement this decomposition for the average growth rate of consumption expenditures on nondurable goods in the United States from 1982 to 1997. The economic importance of precautionary saving rivals that of the real interest rate, but the relative importance of each source of movement in the volatility of consumption is not precisely measured.

SEPARABILITY, AGGREGATION, AND EULER EQUATION ESTIMATION

2000 ◽  
Vol 4 (4) ◽  
pp. 547-572 ◽  
Author(s):  
Adrian R. Fleissig ◽  
A. Ronald Gallant ◽  
John J. Seater
Keyword(s):  
Durable Goods ◽  
Time Preference ◽  
Revealed Preference ◽  
Nondurable Goods ◽  
Consumption Data ◽  
Positive Rate ◽  
Lagged Effects ◽  
Divisia Aggregates ◽  
Special Case ◽  
Separability Structure

We derive a seminonparametric utility function containing the constant relative risk aversion (CRRA) function as a special case, and we estimate the associated Euler equations with U.S. consumption data. There is strong evidence that the CRRA function is misspecified. The correctly specified function includes lagged effects of durable goods and perhaps nondurable goods, is bounded as required by Arrow's Utility Boundedness Theorem, and has a positive rate of time preference. Constraining sample periods and separability structure to be consistent with the generalized axiom of revealed preference affects estimation results substantially. Using Divisia aggregates instead of the NIPA aggregates also affects results.

WHAT DO WORKING CAPITAL AND HABIT TELL US ABOUT THE CO-MOVEMENT PROBLEM?

2014 ◽  
Vol 20 (1) ◽  
pp. 342-361 ◽  
Author(s):  
Yi-Chan Tsai
Keyword(s):  
Durable Goods ◽  
Habit Formation ◽  
Empirical Studies ◽  
Production Costs ◽  
Working Capital ◽  
Financial Friction ◽  
Nondurable Goods ◽  
Monetary Policy Shock ◽  
Interest Rate Shock ◽  
Movement Problem

Empirical studies find that expenditures on both durable and nondurable goods fall following a contractionary monetary policy shock. However, in standard two-sector models with staggered nondurable goods prices and flexible durable goods prices, consumption of durables rises whereas that of nondurables falls in response to a contractionary policy shock. To resolve this co-movement problem, I extend the model to include a realistic financial friction that firms must pay for their productive inputs prior to production, i.e., working capital, along with habit formation in nondurable goods consumption. Following a positive interest rate shock, the working capital channel raises production costs, thereby discouraging production of both durable and nondurable goods. Furthermore, habit formation induces households to smooth the growth rate of nondurable goods consumption, and hence mitigates the fall in the nondurable goods sector. The model solves the co-movement problem and successfully generates a more sensitive response in the durable goods sector, as observed in the data.

The relationship between price and quality in durable product categories with private label brands

2018 ◽  
Vol 27 (6) ◽  
pp. 647-660 ◽  
Author(s):  
Peter J. Boyle ◽  
Hyoshin Kim ◽  
E. Scott Lathrop
Keyword(s):  
Durable Goods ◽  
The Body ◽  
Relative Price ◽  
Private Label ◽  
Content Type ◽  
Product Categories ◽  
Durable Products ◽  
Brand Perception ◽  
Using Data ◽  
The Relationship

PurposeThis paper aims to investigate price and objective-quality in durable product categories containing national and private-label (PL) brands.Design/methodology/approachUsing data from consumer reports objective-test results of 14,476 durable products available in the US the authors identified product categories containing both national and PL brands; constructed relative price- and quality-indices for each category; calculated price and quality differentials for each category then modeled the relationship between them; estimated the price premium associated with national brands (NBs); and computed price–quality (PQ) correlations for each category. The authors also analyzed the same relationships using subjective brand-perception data collected from 240 consumers.FindingsOverall the price of NBs in durable products was substantially higher than the price of PL brands despite there being little to no difference in quality levels overall, with the proportion of categories having higher PL quality nearly equaling that of categories having superior NB quality. Correlation between price and quality was moderate. Accuracy of consumer perceptions varied depending on the importance of brand in the purchase decisions for particular product categories.Originality/valueThis paper uses a large objective dataset spanning a period of more than eight years to assess price and quality for durable goods in categories offering PL brands. It addresses an under-studied area, that of PL brands for higher-priced, longer-lasting products. The findings contribute to an existing understanding of PLs, especially in the domain of durable-goods, as well as to the body of research in the area of PQ relationships. It also adds to our understanding of consumers’ perceptions of brand as a factor in durable product decisions and how the market aligns with those perceptions.

The Non–durable Consumption Expenditure Decision–making Process: Lessons from the Australian Experience

1998 ◽  
Vol 23 (2) ◽  
pp. 19-27
Author(s):  
Martin M Tolar ◽  
Paul W B Hyland ◽  
Charles E O'Mara
Keyword(s):  
Durable Goods ◽  
Decision Making Process ◽  
Consumption Expenditure ◽  
Nondurable Goods ◽  
Goods And Services ◽  
Durable Consumption ◽  
Indian Experience ◽  
Consumer Markets ◽  
Australian Experience ◽  
Insight Into

In recent years⁄ the Indian economy has undergone a number of reforms, resulting in a more marketoriented economy. These reforms have also seen the emergence of a growing middle class with a high disposable income. This increased prosperity has led to increases in demand for both durable and nondurable consumer items. This paper by Tolar⁄ Hyland, and O'Mara reports upon a study of Australian consumers that is designed to provide manufacturers, retailers, and distributors of nondurable goods and services with an insight into what information influences consumers to purchase these items. In doing so, the paper also reports upon India's developing consumer markets. The results of the survey are then applied to the Indian experience with a view to presenting Indian managers with an insight into what determinants consumers take into consideration when purchasing non-durable goods and services.

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