Advanced Search
MyIDEAS: Login to save this paper or follow this series

Borrowing Restrictions and Wealth Constraints: Implications for Aggregate Consumption

Contents:

Author Info

  • Carl E. Walsh

Abstract

Recent empirical studies have found that consumption is more sensitive to current income than the life-cycle, permanent income hypothesis would predict.The present paper studies a model in which the fraction of consumers exhibiting excess sensitivity is endogenously determined. The presence of income uncertainty and restrictions on borrowing are shown to generate adistribution of consumption across individuals which is consistent with the recent empirical evidence. The aggregate marginal propensity to consume out of transitory income is directly related to the fraction of constrained consumers and exhibits positive serial correlation in the face of serially uncorrelated income shocks.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w1629.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1629.

as in new window
Length:
Date of creation: Jun 1985
Date of revision:
Handle: RePEc:nbr:nberwo:1629

Note: ME
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Fumio Hayashi, 1979. "The Permanent Income Hypothesis: Estimation and Testing," Discussion Papers 484, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Bernanke, Ben S, 1984. "Permanent Income, Liquidity, and Expenditure on Automobiles: Evidence from Panel Data," The Quarterly Journal of Economics, MIT Press, vol. 99(3), pages 587-614, August.
  3. Zeldes, Stephen P, 1989. "Consumption and Liquidity Constraints: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 305-46, April.
  4. Schechtman, Jack & Escudero, Vera L. S., 1977. "Some results on "an income fluctuation problem"," Journal of Economic Theory, Elsevier, vol. 16(2), pages 151-166, December.
  5. Laurence J. KOTLIKOFF & Ariel PAKES, 1988. "Looking for the News in the Noise. Additional Stochastic Implications of Optimal Consumption Choise," Annales d'Economie et de Statistique, ENSAE, issue 9, pages 29-46.
  6. Lucas, Robert E, Jr, 1980. "Equilibrium in a Pure Currency Economy," Economic Inquiry, Western Economic Association International, vol. 18(2), pages 203-20, April.
  7. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  8. Heller, Walter Perrin & Starr, Ross M, 1979. "Capital Market Imperfection, the Consumption Function, and the Effectiveness of Fiscal Policy," The Quarterly Journal of Economics, MIT Press, vol. 93(3), pages 455-63, August.
  9. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-45, November.
  10. Svensson, Lars E O, 1985. "Money and Asset Prices in a Cash-in-Advance Economy," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 919-44, October.
  11. 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 461-81, March.
  12. Danthine, Jean-Pierre & Donaldson, John B, 1981. "Stochastic Properties of Fast vs. Slow Growing Economies," Econometrica, Econometric Society, vol. 49(4), pages 1007-33, June.
  13. Ben S. Bernanke, 1982. "Adjustment Costs, Durables, and Aggregate Consumption," NBER Working Papers 1038, National Bureau of Economic Research, Inc.
  14. D. K. Foley & M. F. Hellwig, 1973. "Asset Management with Trading Uncertainty," Working papers 108, Massachusetts Institute of Technology (MIT), Department of Economics.
  15. Bewley, Truman, 1977. "The permanent income hypothesis: A theoretical formulation," Journal of Economic Theory, Elsevier, vol. 16(2), pages 252-292, December.
  16. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
  17. Daniel S. Hamermesh, 1980. "Social Insurance and Consumption: An Empirical Inquiry," NBER Working Papers 0600, National Bureau of Economic Research, Inc.
  18. Koskela, Erkki & Viren, Matti, 1984. "Credit Rationing and Consumer Intertemporal Choice," Oxford Economic Papers, Oxford University Press, vol. 36(2), pages 241-47, June.
  19. Yaari, Menahem E., 1976. "A law of large numbers in the theory of consumer's choice under uncertainty," Journal of Economic Theory, Elsevier, vol. 12(2), pages 202-217, April.
  20. Dolde, Walter, 1978. "Capital Markets and the Short Run Behavior of Life Cycle Savers," Journal of Finance, American Finance Association, vol. 33(2), pages 413-28, May.
  21. Hansen, Lars Peter & Singleton, Kenneth J, 1983. "Stochastic Consumption, Risk Aversion, and the Temporal Behavior of Asset Returns," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 249-65, April.
  22. 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 160-72, July.
  23. Mervyn A. King, 1983. "The Economics of Saving," NBER Working Papers 1247, National Bureau of Economic Research, Inc.
  24. Lucas, Robert Jr., 1982. "Interest rates and currency prices in a two-country world," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 335-359.
  25. Marjorie A. Flavin, 1984. "Excess Sensitivity of Consumption to Current Income: Liquidity Constraints or Myopia?," NBER Working Papers 1341, National Bureau of Economic Research, Inc.
  26. Goldman, Steven Marc, 1974. "Flexibility and the demand for money," Journal of Economic Theory, Elsevier, vol. 9(2), pages 203-222, October.
  27. Sibley, David S., 1975. "Permanent and transitory income effects in a model of optimal consumption with wage income uncertainty," Journal of Economic Theory, Elsevier, vol. 11(1), pages 68-82, August.
  28. Hayashi, Fumio, 1982. "The Permanent Income Hypothesis: Estimation and Testing by Instrumental Variables," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 895-916, October.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:1629. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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