Financial Liberalisation and Consumption Behaviour

Adrian Blundell-Wignall, Frank Browne, Stefano Cavaglia and Alison Tarditi
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Adrian Blundell-Wignall: Reserve Bank of Australia
Frank Browne: Organisation for Economic Co-operation and Development
Stefano Cavaglia: Organisation for Economic Co-operation and Development
Alison Tarditi: Reserve Bank of Australia

RBA Research Discussion Papers from Reserve Bank of Australia

Abstract: The paper addresses the question of whether financial liberalisation and innovation have significantly altered consumption behaviour by reducing liquidity constraints as capital markets have become more flexible. A consumption model in which the permanent income hypothesis and extreme Keynesian consumption functions are nested as special cases is the starting point for this analysis. Estimated values for the sensitivity of consumption to current income for different time periods and for several OECD countries are assessed and compared in the light of various econometric properties, country-specific liberalisation measures and a variety of proxies reflecting changing liquidity constraints.

Date: 1992-09
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