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Liquidity Constraints and Aggregate Consumption Behavior

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  • Cushing, Matthew J

Abstract

This paper presents time-series evidence on the importance of liquidity constraints in aggregate consumption expenditures. In contrast to previous studies, the author finds the proportion of consumption attributable to liquidity constrained behavior to be large and highly statistically significant. The estimation pays careful attention to the problems of stochastic consumption and temporal aggregation, and the estimates are shown to be robust to alternative specifications involving costly adjustment of consumption, public spending, and to stochastically varying rates of return. Copyright 1992 by Oxford University Press.

Suggested Citation

  • Cushing, Matthew J, 1992. "Liquidity Constraints and Aggregate Consumption Behavior," Economic Inquiry, Western Economic Association International, vol. 30(1), pages 134-153, January.
  • Handle: RePEc:oup:ecinqu:v:30:y:1992:i:1:p:134-53
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    Cited by:

    1. Athanasopoulos, George & de Carvalho Guillén, Osmani Teixeira & Issler, João Victor & Vahid, Farshid, 2011. "Model selection, estimation and forecasting in VAR models with short-run and long-run restrictions," Journal of Econometrics, Elsevier, vol. 164(1), pages 116-129, September.
    2. David Blake, 2004. "The impact of wealth on consumption and retirement behaviour in the UK," Applied Financial Economics, Taylor & Francis Journals, vol. 14(8), pages 555-576.
    3. Yang, Shu–Chun Susan, 2007. "Do Capital Income Tax Cuts Trickle Down?," National Tax Journal, National Tax Association;National Tax Journal, vol. 60(3), pages 551-567, September.
    4. Weber, Christian E., 2002. "Intertemporal non-separability and "rule of thumb" consumption," Journal of Monetary Economics, Elsevier, vol. 49(2), pages 293-308, March.
    5. Bosi, Stefano & Seegmuller, Thomas, 2010. "On the role of progressive taxation in a Ramsey model with heterogeneous households," Journal of Mathematical Economics, Elsevier, vol. 46(6), pages 977-996, November.
    6. Robert A. Amano & Tony S. Wirjanto, 1998. "Government Expenditures and the Permanent-Income Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(3), pages 719-730, July.
    7. Gesteira Costa, Marcos & Carrasco-Gutierrez, Carlos Enrique, 2015. "Testing the Optimality of Consumption Decisions of the Representative Household: Evidence from Brazil," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 69(3), September.
    8. Gomes, Fábio Augusto Reis & Issler, João Victor, 2017. "Testing Consumption Optimality Using Aggregate Data," Macroeconomic Dynamics, Cambridge University Press, vol. 21(5), pages 1119-1140, July.
    9. Stefano Bosi & Thomas Seegmuller, 2008. "On the Role of Progressive Taxation in a Ramsey Model with Heterogeneous Households," Post-Print halshs-00331299, HAL.
    10. Brunila, Anne, 1996. "Fiscal policy and private consumption : Saving decisions : Evidence from Finland," Research Discussion Papers 28/1996, Bank of Finland.
    11. Tomas Havranek & Anna Sokolova, 2016. "Do Consumers Really Follow a Rule of Thumb? Three Thousand Estimates from 130 Studies Say "Probably Not"," Working Papers 2016/08, Czech National Bank.
    12. António Afonso, 2001. "Government indebtedness and european consumers behaviour," Working Papers Department of Economics 2001/12, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    13. Brunila, Anne, 1997. "Current income and private consumption : Saving decisions : Testing the finite horizon model," Research Discussion Papers 6/1997, Bank of Finland.
    14. Gomes, Fabio Augusto Reis & Issler, João Victor, 2009. "Testing the optimality of aggregate consumption decisions: is there rule-of-thumb behavior?," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 682, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    15. António Afonso, 2008. "Euler testing Ricardo and Barro in the EU," Economics Bulletin, AccessEcon, vol. 5(16), pages 1-14.
    16. repec:fgv:epgrbe:v:65:n:2:a:3 is not listed on IDEAS
    17. Holanda Oliveira, Lucio Hellery & Carrasco Gutierrez, Carlos Enrique, 2015. "The Dynamics of the Brazilian Current Account with Rule of Thumb Consumers," MPRA Paper 66079, University Library of Munich, Germany.
    18. de Brouwer,Gordon, 1999. "Financial Integration in East Asia," Cambridge Books, Cambridge University Press, number 9780521651486, June.
    19. Amano, Robert A. & Wirjanto, Tony S., 1996. "Intertemporal substitution, imports and the permanent income model," Journal of International Economics, Elsevier, vol. 40(3-4), pages 439-457, May.
    20. Parise, Gerald F., 1994. "Permanent income hypothesis and the cost of adjustment," ISU General Staff Papers 1994010108000012303, Iowa State University, Department of Economics.
    21. Pereira, Rodrigo Mendes, 2011. "Current Account Dynamics with Rule of Thumb Consumers," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 65(2), June.
    22. Yoshitsugu Kitazawa & Makoto Ohta, 2005. "PIH and ROT alternative in view of the intertemporal non-separability of preferences: empirical findings from a Japanese panel data," Discussion Papers 25, Kyushu Sangyo University, Faculty of Economics.
    23. repec:ebl:ecbull:v:5:y:2008:i:16:p:1-14 is not listed on IDEAS

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