Liquidity constraints and time non separable preferences
AbstractWe present an intertemporal model of consumption and savings incorporating liquidity constraints and non-separable preferences. We solve the problem numerically and characterize the optimal consumption behavior. We explore the traditional puzzles highlighted in the empirical literature as excess smoothness of consumption, its excess sensitivity to current income and its excess persistence. We show that a model with durability and liquidity constraints is able to reproduce some of the stylized facts. Next we show that some of the econometric tests are not robust and can mistake liquidity constraints for habit formation. Hence previous results establishing habit formation on US data should be interpreted with caution.
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Bibliographic InfoPaper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (REL - Recherches Economiques de Louvain) with number 1996042.
Date of creation: 01 Sep 1996
Date of revision:
Find related papers by JEL classification:
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
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- Olivier Allais & Loic Cadiou & Stéphane Dees, 2001. "Defining Consumption Behaviour in a Multi-Country Model," Working Papers, CEPII research center 2001-02, CEPII research center.
- Champarnaud, Luc & Michel, Philippe, 2000. "Biens culturels, transmission de culture et croissance," L'Actualité Economique, Société Canadienne de Science Economique, Société Canadienne de Science Economique, vol. 76(4), pages 501-520, dÃ©cembre.
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