Liquidity effects and precautionary saving in the Czech Republic

Don Bredin and Keith Cuthbertson

Applied Financial Economics, 2002, vol. 12, issue 6, 405-413

Abstract: An aggregate consumption function for the Czech Republic since its transition to market status is estimated. Economic theory and the 'general to specific' methodology are used to guide the choice of dynamic equation. Previous empirical evidence on the consumption function in Eastern Europe focused on the centrally planned period and so faced the 'liquidity overhang' principle. A number of different variants are examined including alternative income variables and the rate of unemployment which would proxy income constrained consumers and precautionary saving. The results indicate that the size of the long-run income elasticity is affected by the inclusion of the unemployment variable which may reflect liquidity constraints and precautionary saving.

Date: 2002
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Working Paper: Liquidity Effects and Precautionary Saving in The Czech Republic (2001)
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DOI: 10.1080/09603100110090181

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