DP16283 Dynamics of Expenditures on Durable Goods: the Role of New-Product Quality

Author(s): Fabio Bertolotti, Alessandro Gavazza, Andrea Lanteri
Publication Date: June 2021
Programme Areas: Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16283

We document that new-product quality largely accounts for the dynamics of durable-goods expenditures around the Great Recession. To this end, we assemble a rich dataset on US new-car markets during 2004-2012, combining transaction-level data on prices with detailed information about vehicles' technical characteristics. During the recession, car manufacturers introduced new models of low quality. In turn, a reallocation of expenditures away from high-quality new models accounts for a significant decline in the dispersion of expenditures. The drop in new-model quality induced a persistent decline in the technology embodied in vehicles, and likely contributed to the slow recovery of expenditures.