Aggregate Consumption Behaviour and Liquidity Constraints: The Canadian Evidence
AbstractThis paper considers a general permanent-income model in which a fraction of consumers in the economy is liquidity constrained. Consumption growth rate for these individuals is related to the growth rate of their income and the level of real interest rates. The interest-rate coefficient is predicted to be smaller in the presence of liquidity constraints. Empirically, liquidity constraints are found to be important, and the estimated intertemporal elasticity of substitution parameter is much larger than the one obtained by estimating the standard representative agent model. Lastly, there is some evidence of structural changes over the sample period, which are associated with the 1982 recession.
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Bibliographic InfoArticle provided by Canadian Economics Association in its journal Canadian Journal of Economics.
Volume (Year): 28 (1995)
Issue (Month): 4b (November)
Contact details of provider:
Postal: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4
Web page: http://economics.ca/cje/
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Other versions of this item:
- Wirjanto, T.S., 1993. "Aggregate Consumption Behavior and Liquidity Constraints: The Canadian Evidence," Working Papers 9315, University of Waterloo, Department of Economics.
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- Bacchetta, Philippe & Gerlach, Stefan, 1997.
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- Henry, O. & Messinis, G. & Olekalns, N., 1999. "Rational Habit Modification: the Role of Credit," Department of Economics - Working Papers Series 729, The University of Melbourne.
- Sarantis, Nicholas & Stewart, Chris, 2003. "Liquidity constraints, precautionary saving and aggregate consumption: an international comparison," Economic Modelling, Elsevier, vol. 20(6), pages 1151-1173, December.
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