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Soft liquidity constraints and precautionary saving

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  • Emilio Fernandez-Corugedo

Abstract

The implications for consumption and saving behaviour are explored, when households are allowed to borrow, but face penalties which increase with the amount borrowed. It is shown that the introduction of this type of constraints (soft liquidity constraints) does not lead to consumers behaving very differently from consumers who face constraints which prevent them from borrowing at any time (hard liquidity constraints). However, when hard constraints are relaxed and become soft, the amount of precautionary saving falls.

Suggested Citation

  • Emilio Fernandez-Corugedo, 2002. "Soft liquidity constraints and precautionary saving," Bank of England working papers 158, Bank of England.
  • Handle: RePEc:boe:boeewp:158
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    File URL: http://www.bankofengland.co.uk/archive/Documents/historicpubs/workingpapers/2002/wp158.pdf
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    References listed on IDEAS

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    Cited by:

    1. Kosuke Aoki & James Proudman & Gertjan Vlieghe, 2002. "Houses as collateral: has the link between house prices and consumption in the U.K. changed?," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 163-177.
    2. Aoki, Kosuke & Proudman, James & Vlieghe, Gertjan, 2004. "House prices, consumption, and monetary policy: a financial accelerator approach," Journal of Financial Intermediation, Elsevier, vol. 13(4), pages 414-435, October.
    3. Emilio Fernandez-Corugedo & Simon Price, 2002. "Financial liberalisation and consumers' expenditure: 'FLIB' re-examined," Bank of England working papers 157, Bank of England.
    4. Christopher D. Carroll & Miles S. Kimball, 2001. "Liquidity Constraints and Precautionary Saving," NBER Working Papers 8496, National Bureau of Economic Research, Inc.

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