Durable goods and the distribution of wealth

We study the role an illiquid durable consumption good plays in determining the level of precautionary savings and the distribution of wealth in a standard Aiyagari model. Transaction costs induce an inaction region over the durable good and increase the volatility of nondurable consumption. We find the level of precautionary savings is much higher (over 10 percent of wealth) and that the dispersion of wealth is slightly greater than in single asset models (Gini index of .71 for financial assets). The model is parameterized and calibrated to PSID and SCF data.