Consumption in South America: myopia or liquidity constraints

Lourenço Senne Paz and Fábio Augusto Reis Gomes

No 16, Business and Economics Working Papers from Unidade de Negocios e Economia, Insper

Abstract: In this paper, we consider Brazil, Colombia, Peru and Venezuela for a study on aggregate consumption behavior, in which we test the life cycle-permanent income hypothesis prediction that consumption growth depends only on interest. Our results suggest that only Venezuelan data supported this prediction. To identify possible reasons for rejection in the other cases, we checked for liquidity constraints, myopia and perverse asymmetry. We found that for Brazil the perverse asymmetry was rejected, whereas for Colombia the liquidity constraint hypothesis was rejected. The results were uninformative about Peruvian consumption.

Pages: 17 pages
Date: 2008
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