The Effect of Liquidity Constraints on Consumption: A Cross-Sectional Analysis

Fumio Hayashi

No 882, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper examines the effect of liquidity constraints on consumption expenditures using a single-time cross-section data set. A reduced-form equation for consumption is estimated on high-saving households by the Tobit procedure to account for the selectivity bias. Since high-saving households are not likely to be liquidity constrained, the estimated equation is an appropriate description of how desired consumption dictated by the life cycle-permanent income hypothesis is related to the variables available in the cross-section data. When the reduced-form equation is used to predict desired consumption, the gap between desired consumption and measured consumption is most evident for young households.

Date: 1982-04
Note: EFG
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Published as Hayashi, Fumio. "The Effect of Liquidity Constraints on Consumption: A Cross-Sectional Analysis." Quarterly Journal of Economics, Vol. 1985, No. 1, Feb. 1985, pp. 183-206.

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Journal Article: The Effect of Liquidity Constraints on Consumption: A Cross-Sectional Analysis (1985)
Working Paper: The Effect of Liquidity Constraints on Consumption: Cross-Sectional Analysis (1982)
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