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Borrowing Constraints, Portfolio Choice and Precautionary Motives: Theoretical Predictions and Empirical Complications

  • Michael Haliassos

    ()

    (University of Cyprus)

  • Christis Hassapis

    ()

    (University of Cyprus)

This paper studies the effects of two classes of borrowing constraints, collateral and income based, on wealth accumulation, portfolio behavior, and precautionary motives. We examine the sensitivity of solutions to the tightness of constraints, education levels, and preference parameters. The models are calibrated using the 1992 Survey of Consumer Finances. Our findings may help explain the failure of recent empirical studies to uncover sizable precautionary effects on wealth and on portfolio composition.

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 1999 with number 1341.

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Date of creation: 01 Mar 1999
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Handle: RePEc:sce:scecf9:1341
Contact details of provider: Postal: CEF99, Boston College, Department of Economics, Chestnut Hill MA 02467 USA
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Web page: http://fmwww.bc.edu/CEF99/

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  8. Giucca, P. & Jappelli, T. & Terlizzese, D., 1992. "Earning Uncertainty and Precautionary Saving," Papers 161, Banca Italia - Servizio di Studi.
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  11. Angus Deaton, 1989. "Saving and Liquidity Constraints," NBER Working Papers 3196, National Bureau of Economic Research, Inc.
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  13. Stephen Zeldes, . "Optimal Consumption with Stochastic Income: Deviations from Certainty Equivalence," Rodney L. White Center for Financial Research Working Papers 20-86, Wharton School Rodney L. White Center for Financial Research.
  14. R. Glenn Hubbard & Jonathan Skinner & Stephen P. Zeldes, 1993. "The Importance of Precautionary Motives in Explaining Individual and Aggregate Saving," NBER Working Papers 4516, National Bureau of Economic Research, Inc.
  15. Bertaut, Carol C. & Haliassos, Michael, 1997. "Precautionary portfolio behavior from a life-cycle perspective," Journal of Economic Dynamics and Control, Elsevier, vol. 21(8-9), pages 1511-1542, June.
  16. Haliassos, Michael & Bertaut, Carol C, 1995. "Why Do So Few Hold Stocks?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1110-29, September.
  17. Haliassos, Michael & Hassapis, Christis, 2001. "Non-expected Utility, Saving and Portfolios," Economic Journal, Royal Economic Society, vol. 111(468), pages 69-102, January.
  18. Bodie, Zvi & Merton, Robert C. & Samuelson, William F., 1992. "Labor supply flexibility and portfolio choice in a life cycle model," Journal of Economic Dynamics and Control, Elsevier, vol. 16(3-4), pages 427-449.
  19. Sandmo, Agnar, 1970. "The Effect of Uncertainty on Saving Decisions," Review of Economic Studies, Wiley Blackwell, vol. 37(3), pages 353-60, July.
  20. Christopher D. Carroll, 1992. "The Buffer-Stock Theory of Saving: Some Macroeconomic Evidence," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(2), pages 61-156.
  21. 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.
  22. Mervyn A. King & Jonathan I. Leape, 1984. "Wealth and Portfolio Composition: Theory and Evidence," NBER Working Papers 1468, National Bureau of Economic Research, Inc.
  23. Haliassos, Michael, 1994. "On Perfect Foresight Models of a Stochastic World," Economic Journal, Royal Economic Society, vol. 104(424), pages 477-91, May.
  24. Christopher D. Carroll, 1991. "Buffer stock saving and the permanent income hypothesis," Working Paper Series / Economic Activity Section 114, Board of Governors of the Federal Reserve System (U.S.).
  25. Rob Alessie & Michael Devereux & Guglielmo Weber, 1993. "Intertemporal consumption, durables and liquidity constraints: a cohort analysis," IFS Working Papers W93/07, Institute for Fiscal Studies.
  26. Meghir, Costas & Weber, Guglielmo, 1996. "Intertemporal Nonseparability or Borrowing Restrictions? A Disaggregate Analysis Using a U.S. Consumption Panel," Econometrica, Econometric Society, vol. 64(5), pages 1151-81, September.
  27. Paxson, Christina, 1990. "Borrowing Constraints and Portfolio Choice," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 535-43, May.
  28. Chah, Eun Young & Ramey, Valerie A & Starr, Ross M, 1995. "Liquidity Constraints and Intertemporal Consumer Optimization: Theory and Evidence from Durable Goods," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 272-87, February.
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