Unemployment and liquidity constraints

Yannis Ioannides and Vassilis Hajivassiliou

Journal of Applied Econometrics, 2007, vol. 22, issue 3, 479-510

Abstract: We present a dynamic framework for the interaction between borrowing (liquidity) constraints and deviations of actual hours from desired hours, both measured by discrete-valued indicators, and estimate it as a system of dynamic binary and ordered probit models with panel data from the Panel Study of Income Dynamics. We analyze a household's propensity to be liquidity constrained by means of a dynamic binary probit model. We analyze qualitative aspects of the conditions of employment, namely whether the household head is involuntarily overemployed, voluntarily employed, or involuntarily underemployed or unemployed, by means of a dynamic ordered probit model. We focus on the possible interaction between the two types of constraints. We estimate these models jointly using maximum simulated likelihood, where we allow for individual random effects along with an autoregressive process for the general error term in each equation. A novel feature of our method is that it allows for the random effects to be correlated with regressors in a time-invariant fashion. Our results provide strong support for the basic theory of constrained behavior and the interaction between liquidity constraints and exogenous constraints on labor supply. Copyright © 2007 John Wiley & Sons, Ltd.

Date: 2007
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

Downloads: (external link)
http://hdl.handle.net/10.1002/jae.953 Link to full text; subscription required (text/html)
http://qed.econ.queensu.ca:80/jae/2007-v22.3/ Supporting data files and programs (text/html)

Related works:
Working Paper: Unemployment and Liquidity Constraints (1999)
Working Paper: Unemployment and Liquidity Constraints (1995)
Working Paper: Unemployment and Liquidity Constraints (1995)
Working Paper: Unemployment and Liquidity Constraints (1993)
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: https://EconPapers.repec.org/RePEc:jae:japmet:v:22:y:2007:i:3:p:479-510

Ordering information: This journal article can be ordered from
http://www3.intersci ... e.jsp?issn=0883-7252

DOI: 10.1002/jae.953

Access Statistics for this article

Journal of Applied Econometrics is currently edited by M. Hashem Pesaran

More articles in Journal of Applied Econometrics from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley-Blackwell Digital Licensing () and Christopher F. Baum ().