Uncertainty, Irreversibility, Durable Consumption and the Great Depression
JOÃO MIGUEL EJARQUE
What was the role of uncertainty in the Great Depression? This paper uses a calibrated general equilibrium model to show that, in response to an increase in uncertainty, agents "increase" expenditure on irreversible durable goods and reduce investment in irreversible physical capital. These relative movements occur because durable goods provide a store of utility and are less irreversible than physical capital. These substitutions are unclear at the start of the Great Depression but are clearly visible at the deep end of it in 1932, when the volatility of stock returns is consistently high. Copyright (c) The London School of Economics and Political Science 2008.
In order to set up a list of libraries that you have access to,
you must first login
or sign up.
Then set up a personal list of libraries from your profile page by
clicking on your user name at the top right of any screen.