Consumption and Liquidity Constraints: An Empirical Investigation

Stephen Zeldes

Journal of Political Economy, 1989, vol. 97, issue 2, 305-46

Abstract: Several recent studies have suggested that empirical rejections of the permanent income/life cycle model may be due to the existence of liquidity constraints. This paper tests the permanent income hypothesis against the alternative hypothesis that consumers optimize subject to a well-specified sequence of borrowing constraints. Implications for consumption in the presence of borrowing constraints are derived and then tested using time-series/cross-section data on families from the Panel Study of Income Dynamics. The results generally support the hypothesis that an inability to borrow against future labor income affects the consumption of a significant portion of the population. Copyright 1989 by University of Chicago Press.

Date: 1989
References: Add references at CitEc
Citations: View citations in EconPapers (962)

Downloads: (external link)
http://dx.doi.org/10.1086/261605 full text (application/pdf)
Access to full text is restricted to subscribers. See http://www.journals.uchicago.edu/JPE for details.

Related works:
Working Paper: Consumption and Liquidity Constraints: An Empirical Investigation
Working Paper: Consumption and Liquidity Constraints: An Empirical Investigation
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:ucp:jpolec:v:97:y:1989:i:2:p:305-46

Access Statistics for this article

More articles in Journal of Political Economy from University of Chicago Press
Bibliographic data for series maintained by Journals Division ().