Consumption and Liquidity Constraints: An Empirical Investigation
AbstractSeveral recent studies have suggested that empirical rejections of the permanent income/life cycle model may be due to the existence of liquidity constraints. This paper tests the permanent income hypothesis against the alternative hypothesis that consumers optimize subject to a well-specified sequence of borrowing constraints. Implications for consumption in the presence of borrowing constraints are derived and then tested using time-series/cross-section data on families from the Panel Study of Income Dynamics. The results generally support the hypothesis that an inability to borrow against future labor income affects the consumption of a significant portion of the population. Copyright 1989 by University of Chicago Press.
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Bibliographic InfoArticle provided by University of Chicago Press in its journal Journal of Political Economy.
Volume (Year): 97 (1989)
Issue (Month): 2 (April)
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Web page: http://www.journals.uchicago.edu/JPE/
Other versions of this item:
- Stephen Zeldes, . "Consumption and Liquidity Constraints: An Empirical Investigation," Rodney L. White Center for Financial Research Working Papers 24-85, Wharton School Rodney L. White Center for Financial Research.
- Stephen P. Zeldes, . "Consumption and Liquidity Constraints: An Empirical Investigation," Rodney L. White Center for Financial Research Working Papers 16-88, Wharton School Rodney L. White Center for Financial Research.
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