Credit Shocks and Equilibrium Dynamics in Consumer Durable Goods Markets

• Alessandro Gavazza ^[2] ; Andrea Lanteri ^[1]
  1. [1] Duke University

     Duke University

     Township of Durham, Estados Unidos

     
  2. [2] London School of Economics
• Localización: Review of economic studies, ISSN 0034-6527, Vol. 88, Nº 6, 2021, págs. 2935-2969
• Idioma: inglés
• Texto completo no disponible (Saber más ...)
• Resumen

  • This article studies equilibrium dynamics in consumer durable goods markets after aggregate credit shocks. We introduce two novel features into a general-equilibrium model of durable consumption with heterogeneous households facing idiosyncratic income risk and borrowing constraints: (1) indivisible durable goods are vertically differentiated in their quality and (2) trade on secondary markets at market-clearing prices, with households endogenously choosing when to trade or scrap their durables. The model highlights a new transmission mechanism for macroeconomic shocks and successfully matches several empirical patterns that we document using data on U.S. car markets around the Great Recession. After a tightening of the borrowing limit, debt-constrained households postpone the decision to scrap and upgrade their low-quality cars, which depresses mid-quality car prices. In turn, this effect reduces wealthy households’ incentives to replace their mid-quality cars with high-quality ones, thereby decreasing new-car sales. We further use our framework to evaluate targeted fiscal stimulus policies such as the Car Allowance Rebate System in 2009 (“Cash for Clunkers”).