Consumer durables and the business cycle

Abstract

In this paper, we examine the effect of improving the quality of the consumer durables on the general equilibrium of a perfectly competitive economy. Our most interesting finding is that when such an improvement occurs, the percentage response of the labour supply is higher than the percentage response of real output. This is interesting because one of the main shortcomings of standard Real Business Cycle models is that they tend to generate a response of work hours much weaker than the response of real output.