Credit Shocks and Equilibrium Dynamics in Consumer Durable Goods Markets

Alessandro Gavazza and Andrea Lanteri

No 384, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: This paper studies the equilibrium dynamics arising in consumer durable goods markets in response to aggregate credit supply shocks. To this end, we develop a general-equilibrium model of durable consumption with heterogeneous households facing idiosyncratic income risk and borrowing constraints. Two novel features of our framework are that: 1) used durable goods trade on secondary markets at market-clearing prices; and 2) households endogenously choose when to scrap them. The model successfully matches several empirical patterns of U.S. car markets around the Great Recession that we document using a rich dataset on the prices of new and used vehicles as well as CEX data on households' vehicle replacement activity. After a negative credit shock (i.e., a tightening of the borrowing limit), debt-constrained households postpone the decision to scrap and upgrade their cars. The economy experiences a period of low resale prices for used cars, which reduces wealthy households' incentives to replace their cars, thereby decreasing new-car sales. We also use our framework to study the effects of aggregate income shocks, the role of cars as collateral, and to evaluate targeted fiscal stimulus policies such as the Car Allowance Rebate System in 2009 (``Cash for clunkers'').

Date: 2018
New Economics Papers: this item is included in nep-dge and nep-tre
References: Add references at CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2018/paper_384.pdf (application/pdf)

Related works:
Journal Article: Credit Shocks and Equilibrium Dynamics in Consumer Durable Goods Markets (2021)
Working Paper: Credit shocks and equilibrium dynamics in consumer durable goods markets (2021)
Working Paper: Credit Shocks and Equilibrium Dynamics in Consumer Durable Goods Markets (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:sed018:384

Access Statistics for this paper

More papers in 2018 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().