Liquidity Constraints of the Middle Class
Zvi Hercowitz () and
Jeffrey Campbell ()
No 323, 2009 Meeting Papers from Society for Economic Dynamics
This paper combines impatience with large recurring expenditures to replicate the observation that middle-class U.S. households consume much more out of transitory income than permanent income theory predicts. In the present model, households make a large recurring expenditure of exogenous timing and endogenous size; hence, in spite of their impatience, households save in anticipation of this expenditure. When it occurs, a borrowing constraint taking the form of equity requirements on collateralizable durable goods limits household's debt. Although the standard Euler equation usually holds good, the household is always liquidity constrained, in the sense that they value assets that provide liquidity more than their fundamental value. These constraints are strongest when wealth is highest. We contrast a calibrated version of the model with evidence from the 2001 tax rebate.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
Journal Article: Liquidity Constraints of the Middle Class (2019)
Working Paper: Liquidity Constraints of the Middle Class (2012)
Working Paper: Liquidity Constraints of the Middle Class (2009)
Working Paper: Liquidity constraints of the middle class (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:red:sed009:323
Access Statistics for this paper
More papers in 2009 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().