Time Irreversibility in Consumers' Expenditure: An Analysis of Disaggregated Data

The literature on testing for the presence of cyclical asymmetry in consumers' expenditure is extended via the application of tests for time irreversibility to UK data subject to a higher degree of disaggregation than considered in previous studies. The empirical findings reported provide support for a positive relationship between the durability of goods and the asymmetric, and specifically time irreversible, behaviour they exhibit at a fine level of disaggregation. Further investigation of the underlying causes of such time irreversibility exhibit pronounced difference according to the degree of durability, in that nonlinearity in the underlying data generating process is a prevalent feature of highly disaggregated durable good expenditures, but is a less marked feature of semi-durable and non-durable expenditures. Prominent among the durable and semi-durable good expenditure categories exhibiting such nonlinearities are expenditures relating to housing fittings and communication equipment. These findings are consistent with threshold effects in inventory control as well as the effects of credit rationing, such that these expenditures are more likely to be made at times when those constraints are eased by income windfalls or by the easing of credit availability, possibly associated with mortgage (re-) financing.