Discussion paper
DP16283 Dynamics of Expenditures on Durable Goods: the Role of New-Product Quality
We study the role of new-product quality for the dynamics of durable-goods expenditures around the Great Recession. We assemble a rich dataset on US new-car markets during 2004-2012, combining data on transaction prices with detailed information about vehicles' technical characteristics. During the recession, a reallocation of expenditures away from high-quality new models accounts for a significant decline in the dispersion of expenditures. In turn, car manufacturers introduced new models of lower quality. The drop in new-model quality persistently depressed the technology embodied in vehicles, and likely contributed to the slow recovery of expenditures.
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