Financial liberalisation and consumers' expenditure: 'FLIB' re-examined

Emilio Fernandez-Corugedo and Simon Price

Bank of England working papers from Bank of England

Abstract: The methodology used in papers by Darby and Ireland and Caporale and Williams is examined, to see whether it continues to explain UK consumption behaviour. First, Muellbauer and Murphy's proxy for financial liberalisation (FLIB) is updated. Then a forward-looking consumption model is re-estimated, using FLIB as a variable affecting the proportion of liquidity-constrained individuals. It is found that this implementation of the model, incorporating joint hypotheses about consumption behaviour and the measurement of financial liberalisation, is not robust and is not able to give a consistent picture of the number of people who were liquidity constrained in the 1990s.

Date: 2002-07
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