Liquidity Constraints, Loss Aversion, and Myopia: Evidence from Central and Eastern European Countries

Ramiz Rahmanov

No wp1082, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: This paper adopts the asymmetric error correction technique to investigate the dynamics of household consumption in Central and Eastern European (CEE) countries. The asymmetric co-integration testing shows that households in all CEE countries but Bulgaria respond asymmetrically to negative and positive shocks. Further, the estimates of the asymmetric error correction equations show that despite underdeveloped banking sectors, households in all CEE countries asymmetrically responding to deviations but Slovakia exhibit loss aversion. As an explanation for this finding, we suggest that to smooth consumption, households in these countries deplete their savings.

Keywords: loss aversion; liquidity constraints; consumption; asymmetric error correction model; Central and Eastern Europe. (search for similar items in EconPapers)
JEL-codes: C22 D11 D12 E21 (search for similar items in EconPapers)
Pages: pages
Date: 2014-08-01
New Economics Papers: this item is included in nep-eec, nep-mac and nep-tra
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