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Disinflation, Real Income Uncertainty and the Demand for Consumer Durables in a Mean–Variance Model of Portfolio Selection
Author(s) -
Madsen Jakob B.
Publication year - 2001
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/1467-9957.00241
Subject(s) - disinflation , economics , portfolio , econometrics , inflation (cosmology) , variance (accounting) , demand curve , monetary economics , monetary policy , macroeconomics , microeconomics , financial economics , physics , accounting , theoretical physics
Survey evidence indicates that consumers only expect to be fractionally compensated by the real income reduction of inflation. Incorporating this evidence into a mean–variance model of portfolio selection, this paper shows that demand for durables is a negative function of expected inflation and income uncertainty. Using quarterly data for the USA and annual panel data for the OECD countries, empirical evidence shows that demand for durables is significantly adversely affected by inflation and income uncertainty, and that the recent disinflation has resulted in a significant increase in demand for durables.