Co-authors: Mathieu Pedemont
Affiliation: University of Michigan
Date and time: Wednesday, June 24, 2026 14:30 (Santiago, GMT-04:00)
Location (Hybrid Seminar):

• Auditorio at the Central Bank of Chile, Morandé 115, second floor.
• Online meeting

Registration: seminarios@bcentral.cl

Abstract: This paper studies the forward-looking behavior of hand-to-mouth (HtM) households enabled by durable goods consumption. In a partial equilibrium model, HtM households use durables as imperfect substitutes for financial assets. Following an expectations shock, HtM households modify the composition of their consumption bundle of durables and non-durables to engage in intertemporal substitution. In contrast, financially unconstrained households rely on financial markets for consumption smoothing. We empirically test the model's predictions using a survey-based randomized controlled trial that shocks inflation expectations for HtM and non-HtM households. While both household types significantly revise their expectations, they differ in their intended consumption-spending responses as predicted by the model, confirming that HtM households use durables as a consumption-smoothing mechanism. In a two-agent New Keynesian model, we find that durable goods reshape the transmission of monetary policy. While spending becomes more volatile, aggregate consumption stabilizes. More importantly, the possibility of intertemporal substitution for constrained households implies that, when durability is sufficiently high, the aggregate dynamics of the heterogeneous-agent economy converge to those of the representative-agent framework.