Uncertainty and the timing of automobile purchases

Earlier studies have shown that lumpy investment models well characterize i ndividual expenditures on durables, in particular automobiles. In this clas s of models, a higher level of uncertainty generally implies that the house hold should tolerate a larger imbalance between the actual stock of the dur able and the target stock before adjusting it by buying and/or selling. The n, if the level of uncertainty increases, aggregate expenditures would temp orarily fall. This hypothesis is tested by estimating an aggregate lumpy in vestment model on automobile expenditure data, using stock market volatilit y to proxy uncertainty. The result is that expenditures fall significantly as stock market volatility increases.