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Macroeconomics Workshop - Andrea Lanteri

Thu, 08/31/2017 - 11:40am

Andrea Lanteri

Duke University

498 Uris Hall

"Credit Shocks and Equilibrium Dynamics in Consumer Durable Goods Markets (joint w/Alessandro Gavazza)"

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.

Event Categories: Macroeconomics