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Consumption in South America: myopia or liquidity constraints

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  • Lourenço Senne Paz
  • Fábio Augusto Reis Gomes

Abstract

In this paper, we consider Brazil, Colombia, Peru and Venezuela for a study on aggregate consumption behavior, in which we test the life cycle-permanent income hypothesis prediction that consumption growth depends only on interest. Our results suggest that only Venezuelan data supported this prediction. To identify possible reasons for rejection in the other cases, we checked for liquidity constraints, myopia and perverse asymmetry. We found that for Brazil the perverse asymmetry was rejected, whereas for Colombia the liquidity constraint hypothesis was rejected. The results were uninformative about Peruvian consumption.

Suggested Citation

  • Lourenço Senne Paz & Fábio Augusto Reis Gomes, 2008. "Consumption in South America: myopia or liquidity constraints," Business and Economics Working Papers 016, Unidade de Negocios e Economia, Insper.
    • Handle: RePEc:aap:wpaper:016
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