IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/0882.html
   My bibliography  Save this paper

The Effect of Liquidity Constraints on Consumption: A Cross-Sectional Analysis

Author

Listed:
  • Fumio Hayashi

Abstract

This paper examines the effect of liquidity constraints on consumption expenditures using a single-time cross-section data set. A reduced-form equation for consumption is estimated on high-saving households by the Tobit procedure to account for the selectivity bias. Since high-saving households are not likely to be liquidity constrained, the estimated equation is an appropriate description of how desired consumption dictated by the life cycle-permanent income hypothesis is related to the variables available in the cross-section data. When the reduced-form equation is used to predict desired consumption, the gap between desired consumption and measured consumption is most evident for young households.

Suggested Citation

  • Fumio Hayashi, 1982. "The Effect of Liquidity Constraints on Consumption: A Cross-Sectional Analysis," NBER Working Papers 0882, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:0882
    Note: EFG
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w0882.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. 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.
    2. Hansen, Lars Peter & Sargent, Thomas J., 1982. "Instrumental variables procedures for estimating linear rational expectations models," Journal of Monetary Economics, Elsevier, vol. 9(3), pages 263-296.
    3. Amemiya, Takeshi, 1973. "Regression Analysis when the Dependent Variable is Truncated Normal," Econometrica, Econometric Society, vol. 41(6), pages 997-1016, November.
    4. Levhari, David & Mirman, Leonard J & Zilcha, Itzhak, 1980. "Capital Accumulation under Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(3), pages 661-671, October.
    5. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 38(2), pages 112-134.
    6. Merton, Robert C., 1971. "Optimum consumption and portfolio rules in a continuous-time model," Journal of Economic Theory, Elsevier, vol. 3(4), pages 373-413, December.
    7. Flemming, J S, 1973. "The Consumption Function when Capital Markets are Imperfect: The Permanent Income Hypothesis Reconsidered," Oxford Economic Papers, Oxford University Press, vol. 25(2), pages 160-172, July.
    8. Hakansson, Nils H, 1970. "Optimal Investment and Consumption Strategies Under Risk for a Class of Utility Functions," Econometrica, Econometric Society, vol. 38(5), pages 587-607, September.
    9. James Tobin, 1956. "Estimation of Relationships for Limited Dependent Variables," Cowles Foundation Discussion Papers 3R, Cowles Foundation for Research in Economics, Yale University.
    10. Sargent, Thomas J, 1978. "Rational Expectations, Econometric Exogeneity, and Consumption," Journal of Political Economy, University of Chicago Press, vol. 86(4), pages 673-700, August.
    11. Hansen, Lars Peter & Singleton, Kenneth J, 1982. "Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 50(5), pages 1269-1286, September.
    12. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    13. Hall, Robert E & Mishkin, Frederic S, 1982. "The Sensitivity of Consumption to Transitory Income: Estimates from Panel Data on Households," Econometrica, Econometric Society, vol. 50(2), pages 461-481, March.
    14. Fumio Hayashi, 1979. "The Permanent Income Hypothesis: Estimation and Testing," Discussion Papers 484, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    15. Ben S. Bernanke, 1984. "Permanent Income, Liquidity, and Expenditure on Automobiles: Evidence from Panel Data," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 99(3), pages 587-614.
    Full references (including those not matched with items on IDEAS)

    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. Orazio P. Attanasio, 1998. "Consumption Demand," NBER Working Papers 6466, National Bureau of Economic Research, Inc.
    2. Miron, Jeffrey A, 1986. "Seasonal Fluctuations and the Life Cycle-Permanent Income Model of Consumption," Journal of Political Economy, University of Chicago Press, vol. 94(6), pages 1258-1279, December.
    3. Carl E. Walsh, 1985. "Borrowing Restrictions and Wealth Constraints: Implications for Aggregate Consumption," NBER Working Papers 1629, National Bureau of Economic Research, Inc.
    4. Orazio P. Attanasio & Guglielmo Weber, 2010. "Consumption and Saving: Models of Intertemporal Allocation and Their Implications for Public Policy," Journal of Economic Literature, American Economic Association, vol. 48(3), pages 693-751, September.
    5. 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.
    6. Mervyn A. King, 1983. "The Economics of Saving," NBER Working Papers 1247, National Bureau of Economic Research, Inc.
    7. Manuel Arellano & Olympia Bover, 1990. "La econometría de datos de panel," Investigaciones Economicas, Fundación SEPI, vol. 14(1), pages 3-45, January.
    8. Christiano, Lawrence J & Eichenbaum, Martin & Marshall, David, 1991. "The Permanent Income Hypothesis Revisited," Econometrica, Econometric Society, vol. 59(2), pages 397-423, March.
    9. Cheng K. Wu, 1997. "New Result in Theory of Consumption: Changes in Savings and Income Growth," Macroeconomics 9706007, University Library of Munich, Germany.
    10. Tsai, Grace Yueh-Hsiang, 1989. "A dynamic model of the U.S. cotton market with rational expectations," ISU General Staff Papers 1989010108000012168, Iowa State University, Department of Economics.
    11. Einian, Majid & Nili, Masoud, 2016. "Consumption Smoothing and Borrowing Constraints: Evidence from Household Surveys of Iran," MPRA Paper 72461, University Library of Munich, Germany.
    12. Marjorie A. Flavin, 1991. "The Joint Consumption/Asset Demand Decision: A Case Study in Robust Estimation," NBER Working Papers 3802, National Bureau of Economic Research, Inc.
    13. Auray, Stéphane, 2009. "Consommation, effet de substitution intertemporelle et formation des habitudes," L'Actualité Economique, Société Canadienne de Science Economique, vol. 85(4), pages 437-473, décembre.
    14. Athanasopoulos, George & de Carvalho Guillén, Osmani Teixeira & Issler, João Victor & Vahid, Farshid, 2011. "Model selection, estimation and forecasting in VAR models with short-run and long-run restrictions," Journal of Econometrics, Elsevier, vol. 164(1), pages 116-129, September.
    15. Crump, Richard K. & Eusepi, Stefano & Tambalotti, Andrea & Topa, Giorgio, 2022. "Subjective intertemporal substitution," Journal of Monetary Economics, Elsevier, vol. 126(C), pages 118-133.
    16. Sule Alan & Orazio Attanasio & Martin Browning, 2009. "Estimating Euler equations with noisy data: two exact GMM estimators," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(2), pages 309-324, March.
    17. Eberly, Janice C, 1994. "Adjustment of Consumers' Durables Stocks: Evidence from Automobile Purchases," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 403-436, June.
    18. Charlotte Ostergaard & Bent E. Serensen & Oved Yosha, 2002. "Consumption and Aggregate Constraints: Evidence from U.S. States and Canadian Provinces," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 634-645, June.
    19. Russell Davidson & Victoria Zinde‐Walsh, 2017. "Advances in specification testing," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 50(5), pages 1595-1631, December.
    20. Bernanke, Ben, 1985. "Adjustment costs, durables, and aggregate consumption," Journal of Monetary Economics, Elsevier, vol. 15(1), pages 41-68, January.

    More about this item

    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:nbr:nberwo:0882. 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: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.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.