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Consumption, Leisure and Borrowing Constraints

Listed author(s):
  • Kilponen Juha

    ()

    (Bank of Finland)

We derive and estimate an aggregate Euler consumption equation in which non-separability between consumption and leisure and borrowing constrained households makes current consumption dependent on labour and asset (house) prices. Estimation results suggest that when labour is included in the aggregate consumption equation it proves to be more important than house prices in explaining the wide fluctuations in Finnish consumption data. Moreover, the evidence of excess sensitivity of consumption to income virtually disappears as the consumption Euler equation accounts for predictable changes in labour in the Finnish data.

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Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): 12 (2012)
Issue (Month): 1 (May)
Pages: 1-25

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Handle: RePEc:bpj:bejmac:v:12:y:2012:i:1:n:10
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  1. Keith Finlay & Leandro M. Magnusson, 2009. "Implementing weak-instrument robust tests for a general class of instrumental-variables models," Stata Journal, StataCorp LP, vol. 9(3), pages 398-421, September.
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  17. repec:fth:harver:1435 is not listed on IDEAS
  18. Marjorie Flavin, 1985. "Excess Sensitivity of Consumption to Current Income: Liquidity Constraints or Myopia?," Canadian Journal of Economics, Canadian Economics Association, vol. 18(1), pages 117-136, February.
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