Liquidity Constrains and Ricardian Equivalence in Estonia

Hannes Kaadu () and Lenno Uusküla ()

No 2004-7, Bank of Estonia Working Papers from Bank of Estonia

Abstract: This paper aims to find evidence of the influence of government deficit on private consumption in Estonia. The data only shows some support for Ricardian equivalence. Two approaches were used in the empirical tests. The Haque and Montiel (1989) equation of consumption was estimated using an instrumental variables technique. The Aschauer (1985) system of equations was estimated with the full information maximum likelihood method. Formal tests based on macro data could neither reject nor confirm the existence of liquidity constraints or Ricardian equivalence. There remains a lot of room for testing both of these hypotheses in Estonia. Further efforts to test liquidity constraints should concentrate on using micro data.

Keywords: Ricardian equivalence; liquidity constraints; Estonia (search for similar items in EconPapers)
JEL-codes: E21 E62 H62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-tra
Date: 2004-10-10, Revised 2004-10-10
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