Myopia, Liquidity Constraints, and Aggregate Consumption: A Simple Test

John Shea ()

Journal of Money, Credit and Banking, 1995, vol. 27, issue 3, 798-805

Abstract: This note conducts a simple test for myopia and liquidity constraints in aggregate U.S. consumption. The test exploits the fact that, under myopia, consumption should be equally sensitive to predictable income declines and increases, while under liquidity constraints consumption should be more sensitive to predictable income increases than to declines. Using quarterly postwar data, the author shows that aggregate consumption is in fact more sensitive to predictable income declines than increases. This 'perverse asymmetry' is inconsistent with both myopia and liquidity constraints but is qualitatively consistent with recent theoretical work incorporating loss aversion into intertemporal preferences. Copyright 1995 by Ohio State University Press.

Date: 1995
References: Add references at CitEc
Citations: View citations in EconPapers (62)

Downloads: (external link)
http://links.jstor.org/sici?sici=0022-2879%2819950 ... 0.CO%3B2-3&origin=bc full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

Related works:
Working Paper: Myopia, Liquidity Constraints, and Aggregate Consumption: A Simple Test (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:mcb:jmoncb:v:27:y:1995:i:3:p:798-805

Access Statistics for this article

Journal of Money, Credit and Banking is currently edited by Robert deYoung, Paul Evans, Pok-Sang Lam and Kenneth D. West

More articles in Journal of Money, Credit and Banking from Blackwell Publishing
Bibliographic data for series maintained by Wiley-Blackwell Digital Licensing () and Christopher F. Baum ().