Working Paper: NBER ID: w1148
Authors: N. Gregory Mankiw
Abstract: One important channel through which real interest rates affect aggregate demand is consumer expenditure on durable goods. This paper examines empirically the link between interest rates and consumer durables. Solving for the decision rule relating income and interest rates to consumer demand is an intractable task. This paper avoids this problem by examining the first-order conditions necessary for maximization by the representative consumer. Structural parameters of there presentative utility function are thus recovered. The estimated model suggests that expenditure on consumer durables is far more sensitive to changes in the interest rate than is expenditure on nondurables and services.
Keywords: Consumer Durables; Real Interest Rate; Aggregate Demand
JEL Codes: E21; E43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| consumer expenditure on durables (E20) | consumer expenditure on nondurables (D12) |
| real interest rates (E43) | consumer expenditure on durables (E20) |
| real interest rates (E43) | stock of durables (L68) |
| real interest rates (E43) | consumer expenditure on nondurables (D12) |