Borrowing restrictions and wealth constraints: implications for aggregate consumption

Carl Walsh ()

No 86-06, Working Papers in Applied Economic Theory from Federal Reserve Bank of San Francisco

Abstract: Recent empirical studies have found that consumption is more sensitive to current income than simple versions of the life-cycle, permanent income hypothesis would predict. The present paper studies a model in which the fraction of consumers exhibiting excess sensitivity is endogenously determined. The presence of income uncertainty and restrictions on borrowing are shown to generate a distribution of consumption across individuals which is consistent with the recent empirical evidence. The aggregate fraction of consumers facing a binding borrowing constraint is shown to exhibit positive serial correlation in the face of serially uncorrelated income shocks.

Keywords: Consumption (Economics); Income (search for similar items in EconPapers)
Date: 1986

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Working Paper: Borrowing Restrictions and Wealth Constraints: Implications for Aggregate Consumption (1985)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:fip:fedfap:86-06

Ordering information: This working paper can be ordered from
http://www.frbsf.org/tools/allmail.cfm?mail=256

Access Statistics for this paper

More papers in Working Papers in Applied Economic Theory from Federal Reserve Bank of San Francisco
Contact information at EDIRC.
Series data maintained by Diane Rosenberger ().