Uncertainty and the Timing of Automobile Purchases

Previous work by has shown that lumpy investment models well characterize individual expenditures on durables, in particular automobiles. In that class of models, a higher level of uncertainty generally implies that the household should tolerate a larger imbalance between the actual stock of the durable and the target stock before closing it by buying and/or selling. Then, if the level of uncertainty increases, aggregate expenditures should temporarily fall. This hypothesis is tested by estimating an aggregate lumpy investment model on automobile expenditure data, using stock market volatility to proxy uncertainty. The result is that expenditures fall significantly as stock market volatility increases. JEL Classification Code: E21, E30