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Excess sensitivity of consumption, liquidity constraints, and mandatory saving

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Author Info
Cheolbeom Park
Pei Fang Lim

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Abstract

Using Singapore mandatory saving system, it is examined whether liquidity constraint is a major reason for the excess-sensitivity of consumption to predictable income growth. Although the mandatory saving rate for employees could be a good measure for the financial condition of a liquidity-constrained consumer, it is found, through the nonlinear instrumental variable estimation, that consumption growth is not sensitive to changes in the mandatory saving rate for employees. This finding suggests that liquidity constraints would not be a major reason for the excess-sensitivity puzzle.

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Article provided by Taylor and Francis Journals in its journal Applied Economics Letters.

Volume (Year): 11 (2004)
Issue (Month): 12 (October)
Pages: 771-774
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Handle: RePEc:taf:apeclt:v:11:y:2004:i:12:p:771-774

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Attanasio, Orazio P & Weber, Guglielmo, 1993. "Consumption Growth, the Interest Rate and Aggregation," Review of Economic Studies, Blackwell Publishing, vol. 60(3), pages 631-49, July. [Downloadable!] (restricted)
  2. Philippe BACCHETTA & Stefan GERLACH, 1997. "Consumption and Credit Constraints : International Evidence," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9707, Université de Lausanne, Faculté des HEC, DEEP.
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  3. Campbell, John Y. & Mankiw, N. Gregory, 1991. "The response of consumption to income : A cross-country investigation," European Economic Review, Elsevier, vol. 35(4), pages 723-756, May. [Downloadable!] (restricted)
  4. John Y. Campbell & N. Gregory Mankiw, 1990. "Consumption, Income, and Interest Rates: Reinterpreting the Time Series Evidence," NBER Working Papers 2924, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Carroll, Christopher D & Fuhrer, Jeffrey C & Wilcox, David W, 1994. "Does Consumer Sentiment Forecast Household Spending? If So, Why?," American Economic Review, American Economic Association, vol. 84(5), pages 1397-1408, December. [Downloadable!] (restricted)
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  6. Campbell, John Y & Mankiw, N Gregory, 1990. "Permanent Income, Current Income, and Consumption," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(3), pages 265-79, July.
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  7. Tilak ABEYSINGHE & CHOY Keen Meng, 2002. "The Aggregate Consumption Puzzle In Singapore," Departmental Working Papers wp0213, National University of Singapore, Department of Economics. [Downloadable!]
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  1. Keshab Bhattarai, 2005. "Consumption, investment and financial intermediation in a Ramsey model," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 1(6), pages 329-333, November. [Downloadable!] (restricted)
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