Liquidity Constraints and Aggregate Consumption Behavior

Matthew J Cushing

Economic Inquiry, 1992, vol. 30, issue 1, 134-53

Abstract: This paper presents time-series evidence on the importance of liquidity constraints in aggregate consumption expenditures. In contrast to previous studies, the author finds the proportion of consumption attributable to liquidity constrained behavior to be large and highly statistically significant. The estimation pays careful attention to the problems of stochastic consumption and temporal aggregation, and the estimates are shown to be robust to alternative specifications involving costly adjustment of consumption, public spending, and to stochastically varying rates of return. Copyright 1992 by Oxford University Press.

Date: 1992
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