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Consumption in Brazil: myopia or liquidity constraints? A simple test using quarterly data

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  • Lourenco Senne Paz

Abstract

Several papers have put serious doubt on the validity of the life cycle-permanent income hypothesis. However, a few of them have focused on the reasons behind the failure. In this study, quarterly data from Brazil is used to check whether the rejection of the life cycle hypothesis could be attributed to the presence of either liquidity constraints or Keynesian-type consumers. The findings indicate that neither liquidity constraints nor myopic consumers could generate the finding that consumption is sensitive only to expected income declines. A possible explanation would be that consumers have some kind of loss aversion preference.

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  • Lourenco Senne Paz, 2006. "Consumption in Brazil: myopia or liquidity constraints? A simple test using quarterly data," Applied Economics Letters, Taylor & Francis Journals, vol. 13(15), pages 961-964.
    • Handle: RePEc:taf:apeclt:v:13:y:2006:i:15:p:961-964
    DOI: 10.1080/13504850500425931
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    1. 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 971-987, December.
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    2. Chance Mwabutwa & Manoel Bittencourt & Nicola Viegi, 2012. "Financial Reforms and Consumption Behaviour in Malawi," Working Papers 306, Economic Research Southern Africa.
    3. R. Santos Alimi, 2015. "Estimating Consumption Function under Permanent Income Hypothesis: A Comparison between Nigeria and South Africa," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 5(11), pages 285-298, November.
    4. Tazeb Bisset & Dagmawe Tenaw, 2022. "Keeping up with the Joneses: macro-evidence on the relevance of Duesenberry’s relative income hypothesis in Ethiopia," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 24(2), pages 549-564, December.
    5. Barros Júnior, Fernando Antônio de & Delalibera, Bruno Ricardo & Pinho Neto, Valdemar Rodrigues de, 2018. "Predictability of Aggregate Consumption in Brazil: habits, Non-Separability between Consumption and Leisure, or Credit Constraint?," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 38(1), May.

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