Aggregate Consumption Behavior and Liquidity Constraints: The Canadian Evidence
AbstractThis paper considers a general permanent-income model in which a fraction of consumers in the economy is liquidity constrained. Consumption growth rate for these individuals is related to the growth rate of their income and the level of real interest rates. The interest-rate coefficient is predicted to be smaller in the presence of liquidity constraints. Empirically, liquidity constraints are found to be important, and the estimated intertemporal elasticity of substitution parameter is much larger than the one obtained by estimating the standard representative agent model. Lastly, there is some evidence of structural changes over the sample period, which are associated with the 1982 recession.
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Bibliographic InfoPaper provided by University of Waterloo, Department of Economics in its series Working Papers with number 9315.
Length: 26 pages
Date of creation: 1993
Date of revision:
demand ; money ; money supply ; consumption;
Other versions of this item:
- Tony S. Wirjanto, 1995. "Aggregate Consumption Behaviour and Liquidity Constraints: The Canadian Evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 28(4b), pages 1135-52, November.
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