Stimulating Durable Purchases (with Berger, Turner, Zwick)

Joint with David Berger, Nicholas Turner and Eric Zwick

Paper draft in progress, coming soon

Abstract

An empirical literature shows large responses to temporary subsidies for durable goods. However, the evidence is inconclusive on these policies' stimulative effect net of reversal. We build a heterogeneous agent life cycle model in which durable takeup and adjustment decisions over the life cycle are lumpy, but the timing of which can be considerably shifted by temporary subsidies. Income and savings heterogeneity affects aggregate policy responses due to households' binding financial constraints affecting how much temporary subsidies shift their future durable purchases. The model reconciles empirical results on temporary policies’ reversal, emphasizing how aggregate effects depend on the stimulated good’s durability and the timing of stimulus receipt.