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Testing Ricardian Neutrality with an Intertemporal Stochastic Model

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Author Info
Leiderman, Leonardo
Razin, Assaf
Abstract

This paper's purpose is to develop and estimate a stochastic, intertemporal model of consumption be havior and to use it for testing a version of the Ricardian-equivalen ce proposition with time-series data. Two channels that may give rise to deviations from this proposition are specified: finite horizons a nd liquidity constraints. In addition, the model incorporates explici tly the roles of taxes, substitution between public and private consu mption, and different degrees of consumer goods' durability. The evid ence, based on data for Israel in the first half of the 1980s, suppor ts the Ricardian neutrality specification, yielding plausible estimat es for the behavioral parameters of the aggregate consumption functio n. Copyright 1988 by Ohio State University Press.

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Publisher Info
Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 20 (1988)
Issue (Month): 1 (February)
Pages: 1-21
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Handle: RePEc:mcb:jmoncb:v:20:y:1988:i:1:p:1-21

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  1. Becker, Torbjörn, 1995. "Government Debt and Private Consumption: Theory and Evidence," Working Paper Series in Economics and Finance 71, Stockholm School of Economics. [Downloadable!]
  2. António Afonso, 2008. "Euler testing Ricardo and Barro in the EU," Economics Bulletin, Economics Bulletin, vol. 5(16), pages 1-14. [Downloadable!]
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  3. Kenneth Kasa, 1994. "Finite horizons and the twin deficits," Economic Review, Federal Reserve Bank of San Francisco, pages 19-28. [Downloadable!]
  4. Hannes Kaadu & Lenno Uusküla, 2004. "Liquidity Constrains and Ricardian Equivalence in Estonia," Bank of Estonia Working Papers 2004-7, Bank of Estonia, revised 10 Oct 2004. [Downloadable!]
  5. Aqdas Ali Kazmi, 1994. "Private Consumption, Government Spending, Debt Neutrality: Resolving Kormendi- Feldstein-Modigliani Controversy," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 33(4), pages 1055-1071. [Downloadable!]
  6. Robert J. Barro, 1989. "The Ricardian Approach to Budget Deficits," NBER Working Papers 2685, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Gerhard Reitschuler & Jesús Crespo Cuaresma, 2004. "Ricardian Equivalence Revisited: Evidence from OECD countries," Economics Bulletin, Economics Bulletin, vol. 5(16), pages 1-10. [Downloadable!]
  8. António Afonso, 2001. "Government indebtedness and european consumers behaviour," Working Papers 2001/12, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon.. [Downloadable!]
  9. Michel Normandin, 1994. "Budget Deficit Persistence and the Twin Deficits Hypothesis," Cahiers de recherche CREFE / CREFE Working Papers 31, CREFE, Université du Québec à Montréal. [Downloadable!]
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