Euler consumption equation with non-separable preferences over consumption and leisure and collateral constraints
AbstractThis paper derives and estimates an aggregate Euler consumption equation which allows one to compare the importance of collateral constraints and non-separability of consumption and leisure as alternative sources of excess sensitivity of consumption to current income. Estimation results suggest that during a severe financial distress both non-separability and collateral constraints are needed to capture excess sensitivity of consumption to current economic conditions. During more tranquil times, evidence on collateral effects is more limited and non-separability is sufficient to make the Euler consumption equation agree well with the data.
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Bibliographic InfoPaper provided by Bank of Finland in its series Research Discussion Papers with number 9/2009.
Length: 33 pages
Date of creation: 24 Mar 2009
Date of revision:
housing; financial distress; excess sensitivity of consumption;
Find related papers by JEL classification:
- E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-07-11 (All new papers)
- NEP-BEC-2009-07-11 (Business Economics)
- NEP-DGE-2009-07-11 (Dynamic General Equilibrium)
- NEP-MAC-2009-07-11 (Macroeconomics)
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