The Effect of Liquidity Constraints on Consumption: A Cross-Sectional Analysis
AbstractThis 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.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0882.
Date of creation: Apr 1982
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Publication status: published as Hayashi, Fumio. "The Effect of Liquidity Constraints on Consumption: A Cross-Sectional Analysis." Quarterly Journal of Economics, Vol. 1985, No. 1, Feb. 1985, pp. 183-206.
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Other versions of this item:
- Hayashi, Fumio, 1985. "The Effect of Liquidity Constraints on Consumption: A Cross-sectional Analysis," The Quarterly Journal of Economics, MIT Press, vol. 100(1), pages 183-206, February.
- 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.
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