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Are Countries with Official International Restrictions "Liquidity Constrained?"

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  • Karen K. Lewis

Abstract

In this paper, I empirically examine consumption smoothing behavior across a broad group of countries using a unique data set that indicates whether residents in a country face an official government restriction. I then ask whether the ex ante consumption movements among restricted countries differ from those of unrestricted countries. To gauge the departure from standard consumption smoothing, I use the Campbell and Mankiw (1989, 1991) approach of regressing consumption growth on income growth and instrumenting with lagged variables. Interestingly, I find that consumption growth for residents in countries that impose international restrictions has a significantly higher coefficient on income growth than for residents in countries without those restrictions. Thus, a greater proportion of consumers facing international restrictions appear to act as though they are liquidity constrained according to the Campbell and Mankiw approach. I also discuss alternative interpretations that do not depend upon liquidity constraints.

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  • Karen K. Lewis, 1997. "Are Countries with Official International Restrictions "Liquidity Constrained?"," NBER Working Papers 5991, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:5991
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    Cited by:

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    3. Pierucci, Eleonora & Ventura, Luigi, 2012. "International risk sharing and globalization," MPRA Paper 35869, University Library of Munich, Germany.
    4. Li, Jia, 2012. "On the Empirics of China's Inter-regional Risk Sharing," MPRA Paper 37805, University Library of Munich, Germany.
    5. Ann E. Harrison & Inessa Love & Margaret S. McMillan, 2022. "Global capital flows and financing constraints," World Scientific Book Chapters, in: Globalization, Firms, and Workers, chapter 8, pages 181-213, World Scientific Publishing Co. Pte. Ltd..
    6. Peter Fuleky & Luigi Ventura & Qianxue Zhao, 2018. "Common correlated effects and international risk sharing," International Finance, Wiley Blackwell, vol. 21(1), pages 55-70, March.
    7. Hassan, M. Kabir & Ngene, Geoffrey M. & Yu, Jung-Suk, 2015. "Credit default swaps and sovereign debt markets," Economic Systems, Elsevier, vol. 39(2), pages 240-252.
    8. Wieladek, Tomasz, 2016. "The varying coefficient Bayesian panel VAR model," Bank of England working papers 578, Bank of England.
    9. Karen K. Lewis, 1998. "International Home Bias in International Finance and Business Cycles," NBER Working Papers 6351, National Bureau of Economic Research, Inc.
    10. Kose, M. Ayhan & Prasad, Eswar S. & Terrones, Marco E., 2009. "Does financial globalization promote risk sharing?," Journal of Development Economics, Elsevier, vol. 89(2), pages 258-270, July.
    11. Imbs, Jean, 2006. "The real effects of financial integration," Journal of International Economics, Elsevier, vol. 68(2), pages 296-324, March.
    12. Faruk Balli & Eleonora Pierucci, 2015. "Globalization and international risk-sharing: do political and social factors matter more than economic integration?," CAMA Working Papers 2015-04, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    13. Singh, Ajit, 1999. "The role of employment and work in poverty eradication and empowerment and advancement of women," MPRA Paper 54923, University Library of Munich, Germany.
    14. Hjortsoe, Ida & Weale, Martin & Wieladek, Tomasz, 2016. "Monetary policy and the current account; theory and evidence," Discussion Papers 45, Monetary Policy Committee Unit, Bank of England.
    15. Singh, Ajit & Zammit, Ann, 2000. "International Capital Flows: Identifying the Gender Dimension," World Development, Elsevier, vol. 28(7), pages 1249-1268, July.
    16. Mr. Tomasz Wieladek & Mr. Sergi Lanau, 2012. "Financial Regulation and the Current Account," IMF Working Papers 2012/098, International Monetary Fund.
    17. Ventura, Luigi, 2008. "Risk sharing opportunities and macroeconomic factors in Latin American and Caribbean countries : A consumption insurance assessment," Policy Research Working Paper Series 4490, The World Bank.
    18. Devereux, Michael B. & Min Lee, Khang, 1999. "Endogenous trade policy and the gains from international financial markets," Journal of Monetary Economics, Elsevier, vol. 43(1), pages 35-59, February.
    19. Palle Andersen & Ramon Moreno, 2005. "Financial integration: an overview," BIS Papers chapters, in: Bank for International Settlements (ed.), Globalisation and monetary policy in emerging markets, volume 23, pages 1-8, Bank for International Settlements.

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