IDEAS home Printed from https://ideas.repec.org/p/eea/boewps/wp2004-07.html
   My bibliography  Save this paper

Liquidity Constrains and Ricardian Equivalence in Estonia

Author

Listed:
  • Hannes Kaadu
  • Lenno Uuskula

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.

Suggested Citation

  • Hannes Kaadu & Lenno Uuskula, 2004. "Liquidity Constrains and Ricardian Equivalence in Estonia," Bank of Estonia Working Papers 2004-7, Bank of Estonia, revised 10 Oct 2004.
    • Handle: RePEc:eea:boewps:wp2004-07
    as

    Download full text from publisher

    File URL: http://www.eestipank.ee/sites/eestipank.ee/files/publication/en/WorkingPapers/2004/_wp_704.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Evans, Paul, 1993. "Consumers Are Not Ricardian: Evidence from Nineteen Countries," Economic Inquiry, Western Economic Association International, vol. 31(4), pages 534-548, October.
    2. 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 971-987, December.
    3. 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..
    4. Becker, Torbjörn, 1995. "Government Debt and Private Consumption: Theory and Evidence," SSE/EFI Working Paper Series in Economics and Finance 71, Stockholm School of Economics.
    5. Stock, James H. & West, Kenneth D., 1988. "Integrated regressors and tests of the permanent-income hypothesis," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 85-95, January.
    6. 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.
    7. Robert J. Barro, 1996. "Reflections on Ricardian Equivalence," NBER Working Papers 5502, National Bureau of Economic Research, Inc.
    8. Reginald Darius, 2001. "Debt neutrality: theory and evidence from developing countries," Applied Economics, Taylor & Francis Journals, vol. 33(1), pages 49-58.
    9. Evans, Paul, 1988. "Are Consumers Ricardian? Evidence for the United States," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 983-1004, October.
    10. 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.
    11. Aschauer, David Alan, 1985. "Fiscal Policy and Aggregate Demand," American Economic Review, American Economic Association, vol. 75(1), pages 117-127, March.
    12. Seater, John J, 1993. "Ricardian Equivalence," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 142-190, March.
    13. Fumio Hayashi, 1985. "The Effect of Liquidity Constraints on Consumption: A Cross-Sectional Analysis," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(1), pages 183-206.
    14. 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.
    15. 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 408-415, August.
    16. 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.
    17. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, July.
    18. Agustín García & Julián Ramajo, 2005. "Fiscal policy and private consumption behaviour: The Spanish case," Empirical Economics, Springer, vol. 30(1), pages 115-135, January.
    19. Haug, Alfred A, 1996. "Blanchard's Model of Consumption: An Empirical Study," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(2), pages 169-177, April.
    20. Fumio Hayashi, 1985. "Tests for Liquidity Constraints: A Critical Survey," NBER Working Papers 1720, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Waqas, Muhammad & Awan, Masood Sarwar, 2011. "Are Pakistani Consumers Ricardian?," MPRA Paper 35375, University Library of Munich, Germany.
    2. Reitschuler, Gerhard, 2008. "Assessing Ricardian equivalence for the New Member States: Does debt-neutrality matter?," Economic Systems, Elsevier, vol. 32(2), pages 119-128, June.
    3. Waqas, Muhamad & Awan, Masood Sarwar & Aslam, Muhammad Amir, 2011. "We are living on the cost of our children," MPRA Paper 32044, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Brunila, Anne, 1997. "Current income and private consumption : Saving decisions : Testing the finite horizon model," Research Discussion Papers 6/1997, Bank of Finland.
    2. repec:zbw:bofrdp:1997_006 is not listed on IDEAS
    3. Waqas, Muhamad & Awan, Masood Sarwar & Aslam, Muhammad Amir, 2011. "We are living on the cost of our children," MPRA Paper 32044, University Library of Munich, Germany.
    4. Brunila, Anne, 1997. "Current income and private consumption: Saving decisions: Testing the finite horizon model," Bank of Finland Research Discussion Papers 6/1997, Bank of Finland.
    5. Brunila, Anne, 1996. "Fiscal policy and private consumption : Saving decisions : Evidence from Finland," Research Discussion Papers 28/1996, Bank of Finland.
    6. Brunila, Anne, 1996. "Fiscal policy and private consumption: Saving decisions: Evidence from Finland," Bank of Finland Research Discussion Papers 28/1996, Bank of Finland.
    7. repec:zbw:bofrdp:1996_028 is not listed on IDEAS
    8. Lorenzo Pozzi, 2003. "Tax Discounting in a High‐debt Economy," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(3), pages 261-282, July.
    9. António Afonso, 2001. "Government indebtedness and european consumers behaviour," Working Papers Department of Economics 2001/12, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    10. Elmendorf, Douglas W. & Gregory Mankiw, N., 1999. "Government debt," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 25, pages 1615-1669, Elsevier.
    11. repec:ebl:ecbull:v:5:y:2008:i:16:p:1-14 is not listed on IDEAS
    12. António Afonso, 2008. "Euler testing Ricardo and Barro in the EU," Economics Bulletin, AccessEcon, vol. 5(16), pages 1-14.
    13. Roberto Ricciuti, 2003. "Assessing Ricardian Equivalence," Journal of Economic Surveys, Wiley Blackwell, vol. 17(1), pages 55-78, February.
    14. Koumparoulis, Dimitrios, 2006. "Ευρωπαϊκή Δημοσιονομική Πολιτική Και Οικονομική Μεγέθυνση: Η Νεοκλασική Οικονομική Θεωρία Για Την Περίπτωση Της Ελλάδας [European Fiscal Policy and Economic Growth: The Neoclassical Economic Theory," MPRA Paper 44310, University Library of Munich, Germany.
    15. Waqas, Muhammad & Awan, Masood Sarwar, 2011. "Are Pakistani Consumers Ricardian?," MPRA Paper 35375, University Library of Munich, Germany.
    16. Attanasio, Orazio P., 1995. "The intertemporal allocation of consumption: theory and evidence," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 42(1), pages 39-56, June.
    17. Tomas Wroblowsky, 2007. "Explaining the Variability of Debt Neutrality Tests Results: A Meta-Analysis of Ricardian Equivalence," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 5(1), pages 7-24.
    18. 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.
    19. Gianluigi Giorgioni & Ken Holden, 2003. "Ricardian equivalence, expansionary fiscal contraction and the stock market: a VECM approach," Applied Economics, Taylor & Francis Journals, vol. 35(12), pages 1435-1443.
    20. Artidiatun Adji & James Alm, 2016. "Testing for Ricardian Equivalence in Indonesia," Working Papers 1616, Tulane University, Department of Economics.
    21. 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.
    22. Becker, Torbjörn, 1995. "Budget Deficits, Tax Risk and Consumption," SSE/EFI Working Paper Series in Economics and Finance 74, Stockholm School of Economics.
    23. Ghatak, Anita & Ghatak, Subrata, 1996. "Budgetary deficits and Ricardian equivalence: The case of India, 1950-1986," Journal of Public Economics, Elsevier, vol. 60(2), pages 267-282, May.

    More about this item

    Keywords

    Ricardian equivalence; liquidity constraints; Estonia;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - 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; Modern Monetary Theory
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eea:boewps:wp2004-07. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peeter Luikmel (email available below). General contact details of provider: https://edirc.repec.org/data/epgovee.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.