This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Consumption and Liquidity Constraints in Australia and East Asia: Does Financial Integration Matter?

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Gordon de Brouwer (Reserve Bank of Australia)
Abstract

One of the recurring themes in the literature on financial systems is whether financial integration - that is, openness in the domestic and international financial system - has real, structural economic effects. This paper examines the effect of financial openness on the consumption of non-durables in Australia and selected East Asian economies. A range of variables, some of which explicitly represent financial regulation, are used to proxy the shadow price of the liquidity constraint. Non-durable consumption in Hong Kong, Japan, Korea, Singapore, Taiwan and Thailand can be modelled as the outcome of constrained optimisation, in some cases with time-varying real interest rates and demographic change, while that in Australia is liquidity unconstrained, at least from the 1980s. The constraint appears constant but very weak in Hong Kong and declining in Singapore, consistent with the extent and timing of domestic and international financial reforms in these economies. It appears unchanged for Japan and Korea. For Taiwan and Thailand, there is strong evidence that domestic financial regulation and control have constrained the intertemporal optimisation of consumption, although the constraint may be expected to unwind with recent liberalisation. The experience of Australia and the selected East Asian economies suggests that the liberalisation of the capital account, combined with deregulation and expansion of the domestic financial sector, eases the constraints on consumption smoothing. Financial integration does matter. The experience of these countries also indicates that there is no simple connection between the openess of a country's financial system and its saving and investment performance.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help file. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.rba.gov.au/rdp/RDP9602.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp9602.

Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Length:
Date of creation: May 1996
Date of revision:
Handle: RePEc:rba:rbardp:rdp9602

Contact details of provider:
Postal: GPO Box 3947, Sydney NSW 2001
Phone: 61-2-9551-8111
Fax: 61-2-9551-8000
Email:
Web page: http://www.rba.gov.au/
More information through EDIRC

Order Information:
Web: http://www.rba.gov.au/PublicationsAndResearch/RDP/RDP_Order/index.html

For technical questions regarding this item, or to correct its listing, contact: (Kylie Lowe).

Related research
Keywords:

Find related papers by JEL classification:
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
O53 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
O56 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Oceania

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.:

  1. Gali, Jordi, 1991. "Budget Constraints and Time-Series Evidence on Consumption," American Economic Review, American Economic Association, vol. 81(5), pages 1238-53, December. [Downloadable!] (restricted)
  2. Fry, M.J., 1995. "Financial Development in Asia: Some Analytical Issues," Papers 95-01, University of Birmingham - International Financial Group.
  3. Schmidt-Hebbel, Klaus & Webb, Steven B & Corsetti, Giancarlo, 1992. "Household Saving in Developing Countries: First Cross-Country Evidence," World Bank Economic Review, Oxford University Press, vol. 6(3), pages 529-47, September.
    Other versions:
  4. Gali, Jordi, 1990. "Finite horizons, life-cycle savings, and time-series evidence on consumption," Journal of Monetary Economics, Elsevier, vol. 26(3), pages 433-452, December. [Downloadable!] (restricted)
  5. 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 971-87, December. [Downloadable!] (restricted)
    Other versions:
  6. Lattimore, Ralph, 1994. "Australian Consumption and Saving," Oxford Review of Economic Policy, Oxford University Press, vol. 10(2), pages 54-70, Summer.
  7. Donald Cox & Tullio Japelli, 1993. "The Effect Of Borrowing Constraints On Consumer Liabilities," Boston College Working Papers in Economics 228, Boston College Department of Economics.
    Other versions:
  8. Lovell, Michael C, 1983. "Data Mining," The Review of Economics and Statistics, MIT Press, vol. 65(1), pages 1-12, February. [Downloadable!] (restricted)
  9. Clarida, Richard H, 1991. "Aggregate Stochastic Implications of the Life Cycle Hypothesis," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 851-67, August. [Downloadable!] (restricted)
  10. James A. Wilcox, 1989. "Liquidity constraints on consumption: the real effects of "real" lending policies," Economic Review, Federal Reserve Bank of San Francisco, issue Fall, pages 39-52. [Downloadable!]
  11. Charles R. Nelson, 1987. "A Reappraisal of Recent Tests of the Permanent Income Hypothesis," NBER Working Papers 1687, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Muellbauer, John, 1983. "Surprises in the Consumption Function," Economic Journal, Royal Economic Society, vol. 93(369a), pages 34-50, Supplemen. [Downloadable!] (restricted)
  13. Guy Debelle & Bruce Preston, 1995. "Consumption, Investment and International Linkages," RBA Research Discussion Papers rdp9512, Reserve Bank of Australia. [Downloadable!]
  14. Clarida, R.H., 1991. "Aggregate Stochastic Implications of the Life Cycle Hypothesis," Discussion Papers 1991_14, Columbia University, Department of Economics.
  15. 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. [Downloadable!] (restricted)
    Other versions:
  16. Muellbauer, John, 1994. "The Assessment: Consumer Expenditure," Oxford Review of Economic Policy, Oxford University Press, vol. 10(2), pages 1-41, Summer.
  17. Deaton, A. & Grosh, M., 1998. "Consumption," Papers 191, Princeton, Woodrow Wilson School - Development Studies.
  18. Robert E. Hall, 1987. "Consumption," NBER Working Papers 2265, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  19. Cochrane, John H, 1991. "A Simple Test of Consumption Insurance," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 957-76, October. [Downloadable!] (restricted)
  20. Scheinkman, Jose A & Weiss, Laurence, 1986. "Borrowing Constraints and Aggregate Economic Activity," Econometrica, Econometric Society, vol. 54(1), pages 23-45, January. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, 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.)

  1. Henry, O. & Messinis, G. & Olekalns, N., 1999. "Rational Habit Modification: the Role of Credit," Department of Economics - Working Papers Series 729, The University of Melbourne. [Downloadable!]
  2. Penelope A. Smith & Lei Lei Song, 2005. "Response of Consumption to Income, Credit and Interest Rate Changes in Australia," Melbourne Institute Working Paper Series wp2005n20, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne. [Downloadable!]
  3. Aghion, Philippe & Bacchetta, Philippe & Banerjee, Abhijit, 1999. "Capital Markets and the Instability of Open Economies," CEPR Discussion Papers 2083, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
Statistics
Access and download statistics

Did you know? Over five million full texts a year are downloaded through IDEAS.

This page was last updated on 2008-8-30.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.