Liquidity constraints, precautionary saving and aggregate consumption: an international comparison

Sarantis, Nick and Stewart, Chris (2003) Liquidity constraints, precautionary saving and aggregate consumption: an international comparison. Economic Modelling, 20(6), pp. 1151-1173. ISSN (print) 0264-9993

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Abstract

This paper has three objectives. First, to expand Hall's [J. Polit. Econ. 86 (1978) 971] rational expectations permanent income/life cycle hypotheses (REPIH/RELCH) representative agent model to allow for current income consumers, the durable component of total consumer expenditures and for intertemporal substitution, which are often cited as the main reasons for the rejection of Hall's model. Second, to apply this modified model to 20 OECD countries over the post-World War II period. The GMM estimation method is employed. Third, to examine the relative influence of liquidity constraints and precautionary saving on the cross-country variation in the proportion of current income consumers, using cross-country regressions and a non-linear model of panel data. The presence of current income consumers, which is primarily due to liquidity constraints and to a lesser extent to precautionary saving, is the major factor for the rejection of the basic REPIH/RELCH model in all OECD countries.

Item Type: Article
Research Area: Economics and econometrics
Faculty, School or Research Centre: Faculty of Arts and Social Sciences > School of Economics (until November 2012)
Depositing User: Chris Stewart
Date Deposited: 24 Jun 2013 11:58
Last Modified: 29 Nov 2013 12:24
URI: http://eprints.kingston.ac.uk/id/eprint/25512

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