Mankiw's Puzzle on Consumer Durables: A Misspecification

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Tam Bang Vu;
  • Subject: utility function, multiplicative disturbance, nonlinear ARMA(8,1) process, stochastic depreciation, misspecification error
    • jel: jel:E21 | jel:C52

Mankiw (1982) shows that consumer durables expenditures should follow a linear ARMA(1,1) process, but the data analyzed supports an AR(1) process instead; thus, a puzzle. In this paper, we employ a more general utility function than Mankiw's quadratic one. Further, the ... View more
  • References (1)

    = Cov(ln Ct , ln Zt+1) + Cov(ln Ct , vt+1) = Cov(ln Ct , ln Zt+1) < 0 , Var(ln Ct ) Var(ln Ct ) Var(ln Ct )

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