Are consumer durables important for business cycles?

This paper investigates whether consumer durables are important for the generation and propagation of business cycles. We construct a two-sec tor model that succeeds in generating business cycles that mimic empirical patterns of cross-sector volatility and comovement. We find that half the relatively higher volatility associated with the durable-goods sector is due to higher volatility of shocks hitting this sector, with the other half due to endogenous responses, notably the investment accelerator. Nevertheless, this model does not have stronger internal propagation than the one-sector model. Further, incorporating durable consumer goods has little effect on the behavior of other macroeconomic variables.