Cycles Generated by the Consumer Durables Sector

Abstract

We conjecture that in highly developed economies business cycles show positive feedback mechanism in which the households amplify the crises by refraining to replace old durable goods to new ones. On the one hand, families do not suffer much if they stop buying new consumer durables, such as automobiles, the example we use in this paper, because it is perfectly rational for them to continue to drive their "old" vehicle for quite a while without much welfare loss. On the other hand, families drawing salary from the given sector do suffer from the decline of the demand and if the crisis is deep and the sector has strong influence on the entire economy, all households are effected at the end of the day. In the framework of a two-sector economy agent-based model, we illustrate our thesis with the fluctuations in US car sales in the period 2006-2014. Subsequently we use an agent-based simulation and show that our conjectures do hold if applied to real-life statistical data.