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Intertemporal Nonseparability or Borrowing Restrictions? A Disaggregate Analysis Using a U.S. Consumption Panel

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  • Meghir, Costas
  • Weber, Guglielmo

Abstract

The authors propose a method to test for liquidity constraints that relies on using the within period marginal rate of substitution condition as a benchmark to evaluate the intertemporal Euler equation. If spot markets for nondurable goods exist but financial markets are imperfect, the comparison of first-order conditions involving the relevant spot and intertemporal prices can be used to detect the imperfection. The authors apply their methodology to a large sample of U.S. households, allowing for a general nonseparable preference structure. Their estimates do not indicate the presence of liquidity constraints, with the possible exception of young households. Copyright 1996 by The Econometric Society.

Suggested Citation

  • Meghir, Costas & Weber, Guglielmo, 1996. "Intertemporal Nonseparability or Borrowing Restrictions? A Disaggregate Analysis Using a U.S. Consumption Panel," Econometrica, Econometric Society, vol. 64(5), pages 1151-1181, September.
    • Handle: RePEc:ecm:emetrp:v:64:y:1996:i:5:p:1151-81
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