Consumption and Liquidity Constraints in Australia and East Asia: Does Financial Integration Matter?
One of the recurring themes in the literature on financial systems is whether financial integration – that is, openness in the domestic and international financial system – has real, structural economic effects. This paper examines the effect of financial openness on the consumption of non-durables in Australia and selected East Asian economies. A range of variables, some of which explicitly represent financial regulation, are used to proxy the shadow price of the liquidity constraint. Non-durable consumption in Hong Kong, Japan, Korea, Singapore, Taiwan and Thailand can be modelled as the outcome of constrained optimisation, in some cases with time-varying real interest rates and demographic change, while that in Australia is liquidity unconstrained, at least from the 1980s. The constraint appears constant but very weak in Hong Kong and declining in Singapore, consistent with the extent and timing of domestic and international financial reforms in these economies. It appears unchanged for Japan and Korea. For Taiwan and Thailand, there is strong evidence that domestic financial regulation and control have constrained the intertemporal optimisation of consumption, although the constraint may be expected to unwind with recent liberalisation. The experience of Australia and the selected East Asian economies suggests that the liberalisation of the capital account, combined with deregulation and expansion of the domestic financial sector, eases the constraints on consumption smoothing. Financial integration does matter. The experience of these countries also indicates that there is no simple connection between the openess of a country’s financial system and its saving and investment performance.
|Date of creation:||May 1996|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.rba.gov.au/Email:
More information through EDIRC
|Order Information:||Web: http://www.rba.gov.au/forms/rdp-order-form/|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Cochrane, John H, 1991. "A Simple Test of Consumption Insurance," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 957-76, October.
- John Y. Campbell & N. Gregory Mankiw, 1989.
"Consumption, Income, and Interest Rates: Reinterpreting the Time Series Evidence,"
NBER Working Papers
2924, National Bureau of Economic Research, Inc.
- John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income and Interest Rates: Reinterpreting the Time Series Evidence," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 185-246 National Bureau of Economic Research, Inc.
- repec:fth:harver:1435 is not listed on IDEAS
- Gali, Jordi, 1990. "Finite horizons, life-cycle savings, and time-series evidence on consumption," Journal of Monetary Economics, Elsevier, vol. 26(3), pages 433-452, December.
- Charles R. Nelson, 1985. "A Reappraisal of Recent Tests of the Permanent Income Hypothesis," NBER Working Papers 1687, National Bureau of Economic Research, Inc.
- Campbell, John Y. & Mankiw, N. Gregory, 1990.
"Permanent Income, Current Income, and Consumption,"
3353762, Harvard University Department of Economics.
- Campbell, John Y. & Mankiw, N. Gregory, 1991. "The response of consumption to income : A cross-country investigation," European Economic Review, Elsevier, vol. 35(4), pages 723-756, May.
- Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, June.
- Muellbauer, John, 1994. "The Assessment: Consumer Expenditure," Oxford Review of Economic Policy, Oxford University Press, vol. 10(2), pages 1-41, Summer.
- Muellbauer, John, 1983. "Surprises in the Consumption Function," Economic Journal, Royal Economic Society, vol. 93(369a), pages 34-50, Supplemen.
- Stephen Zeldes, .
"Consumption and Liquidity Constraints: An Empirical Investigation,"
Rodney L. White Center for Financial Research Working Papers
24-85, Wharton School Rodney L. White Center for Financial Research.
- Zeldes, Stephen P, 1989. "Consumption and Liquidity Constraints: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 305-46, April.
- Stephen P. Zeldes, . "Consumption and Liquidity Constraints: An Empirical Investigation," Rodney L. White Center for Financial Research Working Papers 16-88, Wharton School Rodney L. White Center for Financial Research.
- Cox, Donald & Jappelli, Tullio, 1993.
"The Effect of Borrowing Constraints on Consumer Liabilities,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 25(2), pages 197-213, May.
- Donald Cox & Tullio Japelli, 1993. "The Effect Of Borrowing Constraints On Consumer Liabilities," Boston College Working Papers in Economics 228, Boston College Department of Economics.
- Shintani, M., 1993.
"Cointegration and Tests Of the Permanent Income Hypothesis: Japanese Evidence with International Comparisons,"
ISER Discussion Paper
0311, Institute of Social and Economic Research, Osaka University.
- Shintani Mototsugu, 1994. "Cointegration and Tests of the Permanent Income Hypothesis: Japanese Evidence with International Comparisons," Journal of the Japanese and International Economies, Elsevier, vol. 8(2), pages 144-172, June.
- Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
- Gali, Jordi, 1991. "Budget Constraints and Time-Series Evidence on Consumption," American Economic Review, American Economic Association, vol. 81(5), pages 1238-53, December.
- Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, number 9780198288244.
- Clarida, R.H., 1991.
"Aggregate Stochastic Implications of the Life Cycle Hypothesis,"
1991_14, Columbia University, Department of Economics.
- Clarida, Richard H, 1991. "Aggregate Stochastic Implications of the Life Cycle Hypothesis," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 851-67, August.
- Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
- Lattimore, Ralph, 1994. "Australian Consumption and Saving," Oxford Review of Economic Policy, Oxford University Press, vol. 10(2), pages 54-70, Summer.
- Fry, M.J., 1995. "Financial Development in Asia: Some Analytical Issues," Papers 95-01, University of Birmingham - International Financial Group.
- Maurice Obstfeld., 1993.
"Are Industrial-Country Consumption Risks Globally Diversified?,"
Center for International and Development Economics Research (CIDER) Working Papers
C93-014, University of California at Berkeley.
- Maurice Obstfeld, 1994. "Are Industrial-Country Consumption Risks Globally Diversified?," NBER Working Papers 4308, National Bureau of Economic Research, Inc.
- Ashok K. Lahiri, 1989. "Dynamics of Asian Savings: The Role of Growth and Age Structure," IMF Staff Papers, Palgrave Macmillan, vol. 36(1), pages 228-261, March.
- Blundell-Wignall, Adrian & Browne, Frank & Tarditi, Alison, 1995. "Financial Liberalization and the Permanent Income Hypothesis," The Manchester School of Economic & Social Studies, University of Manchester, vol. 63(2), pages 125-44, June.
- Alan S. Blinder & Angus Deaton, 1985. "The Time Series Consumption Function Revisited," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(2), pages 465-521.
When requesting a correction, please mention this item's handle: RePEc:rba:rbardp:rdp9602. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Paula Drew)
If references are entirely missing, you can add them using this form.