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Liquidity Constrains and Ricardian Equivalence in Estonia

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Author Info
Hannes Kaadu ()
Lenno Uusküla ()

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Abstract

This paper aims to find evidence of the influence of government deficit on private consumption in Estonia. The data only shows some support for Ricardian equivalence. Two approaches were used in the empirical tests. The Haque and Montiel (1989) equation of consumption was estimated using an instrumental variables technique. The Aschauer (1985) system of equations was estimated with the full information maximum likelihood method. Formal tests based on macro data could neither reject nor confirm the existence of liquidity constraints or Ricardian equivalence. There remains a lot of room for testing both of these hypotheses in Estonia. Further efforts to test liquidity constraints should concentrate on using micro data.

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File URL: http://www.eestipank.info/pub/en/dokumendid/publikatsioonid/seeriad/uuringud/_2004/_7_2004/_wp_704.pdf
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Paper provided by Bank of Estonia in its series Bank of Estonia Working Papers with number 2004-7.

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Date of creation: 10 Oct 2004
Date of revision: 10 Oct 2004
Publication status: published
Handle: RePEc:eea:boewps:wp2004-07

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Postal: Estonia bld. 13, 15095 Tallinn, ESTONIA
Phone: +3726680719
Fax: +3726680900
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Web page: http://www.bankofestonia.info
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Postal: Estonia bld. 13, 15095 Tallinn, ESTONIA
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Related research
Keywords: Ricardian equivalence; liquidity constraints; Estonia;

Find related papers by JEL classification:
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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References listed on IDEAS
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  1. Evans, Paul, 1993. "Consumers Are Not Ricardian: Evidence from Nineteen Countries," Economic Inquiry, Oxford University Press, vol. 31(4), pages 534-48, October.
  2. Christopher D. Carroll, 2001. "A Theory of the Consumption Function, with and without Liquidity Constraints," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 23-45, Summer. [Downloadable!] (restricted)
    Other versions:
  3. Fumio Hayashi, 1982. "The Effect of Liquidity Constraints on Consumption: Cross-Sectional Analysis," Discussion Papers 516, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
    Other versions:
  4. James H. Stock & Kenneth D. West, 1988. "Integrated Regressors and Tests of the Permanent Income Hypothesis," NBER Working Papers 2359, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Aschauer, David Alan, 1985. "Fiscal Policy and Aggregate Demand," American Economic Review, American Economic Association, vol. 75(1), pages 117-27, March. [Downloadable!] (restricted)
  6. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December. [Downloadable!] (restricted)
  7. Rasmus Pikkani, 2000. "The monetary sector under a currency board arrangement : specification and estimation of a model with Estonian data," Bank of Estonia Working Papers 2000-4, Bank of Estonia, revised 13 Oct 2000. [Downloadable!]
  8. Robert J. Barro, 1996. "Reflections on Ricardian Equivalence," NBER Working Papers 5502, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Darius, Reginald, 2001. "Debt Neutrality: Theory and Evidence from Developing Countries," Applied Economics, Taylor and Francis Journals, vol. 33(1), pages 49-58, January. [Downloadable!] (restricted)
  10. Fumio Hayashi, 1985. "Tests for Liquidity Constraints: A Critical Survey," NBER Working Papers 1720, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Leiderman, Leonardo & Razin, Assaf, 1988. "Testing Ricardian Neutrality with an Intertemporal Stochastic Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(1), pages 1-21, February. [Downloadable!] (restricted)
    Other versions:
  12. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec.. [Downloadable!] (restricted)
  13. Haque, Nadeem U & Montiel, Peter, 1989. "Consumption in Developing Countries: Tests for Liquidity Constraintsand Finite Horizons," The Review of Economics and Statistics, MIT Press, vol. 71(3), pages 408-15, August. [Downloadable!] (restricted)
  14. Seater, John J, 1993. "Ricardian Equivalence," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 142-90, March. [Downloadable!] (restricted)
  15. Agustín García & Julián Ramajo, 2005. "Fiscal policy and private consumption behaviour: The Spanish case," Empirical Economics, Springer, vol. 30(1), pages 115-135, January. [Downloadable!] (restricted)
  16. Becker, Torbjörn, 1995. "Government Debt and Private Consumption: Theory and Evidence," Working Paper Series in Economics and Finance 71, Stockholm School of Economics. [Downloadable!]
  17. Kormendi, Roger C, 1983. "Government Debt, Government Spending, and Private Sector Behavior," American Economic Review, American Economic Association, vol. 73(5), pages 994-1010, December. [Downloadable!] (restricted)
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