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Liquidity Constraint Tightness and Consumer Responses to Fiscal Stimulus Policy

Author

Listed:
  • Claus Thustrup Kreiner
  • David Dreyer Lassen
  • Søren Leth-Petersen

Abstract

The marginal interest rate is the price at which a household can access additional liquidity. Consumption theory posits that variation in marginal interest rates across consumers predicts differences in the propensity to spend a stimulus payment. This hypothesis is tested in the context of a Danish 2009 stimulus policy that transformed illiquid pension wealth into liquid wealth. Marginal interest rates are constructed from administrative records with account level information and merged with survey data measuring the spending response to the stimulus policy. The data reveal substantial variation in marginal interest rates across consumers, and these interest rates predict spending responses.

Suggested Citation

  • Claus Thustrup Kreiner & David Dreyer Lassen & Søren Leth-Petersen, 2019. "Liquidity Constraint Tightness and Consumer Responses to Fiscal Stimulus Policy," American Economic Journal: Economic Policy, American Economic Association, vol. 11(1), pages 351-379, February.
  • Handle: RePEc:aea:aejpol:v:11:y:2019:i:1:p:351-79
    Note: DOI: 10.1257/pol.20140313
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    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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