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Auto Industry Cyclicality: Difference between revisions
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* '''Widely experienced negative shock to permanent income is a strong candidate explanation for the collapse.''' The explanation is consistent with the permanent income hypothesis adapted to include infrequent, discrete durable goods purchases. House price declines, on the other hand, explain only a small part of the auto sales decline. | * '''Widely experienced negative shock to permanent income is a strong candidate explanation for the collapse.''' The explanation is consistent with the permanent income hypothesis adapted to include infrequent, discrete durable goods purchases. House price declines, on the other hand, explain only a small part of the auto sales decline. | ||
* A related explanation for the d'''ecline in auto sales is the increase in uncertainty''' that many researchers have associated with the last recession. Bloom (2009) presents a model where irreversible investment in durable goods causes an increase in uncertainty to reduce purchases of durables. We note that a new vehicle purchase exhibits an aspect of irreversibility, because the resale value of a newly bought new auto falls dramatically immediately after being acquired.<ref>https://s3.amazonaws.com/real.stlouisfed.org/wp/2018/2018-019.pdf</ref> | * A related explanation for the d'''ecline in auto sales is the increase in uncertainty''' that many researchers have associated with the last recession. Bloom (2009) presents a model where irreversible investment in durable goods causes an increase in uncertainty to reduce purchases of durables. We note that a new vehicle purchase exhibits an aspect of irreversibility, because the resale value of a newly bought new auto falls dramatically immediately after being acquired.<ref>https://s3.amazonaws.com/real.stlouisfed.org/wp/2018/2018-019.pdf</ref> | ||
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