Aggregate Consumption Behaviour and Liquidity Constraints: The Canadian Evidence

Canadian Journal of Economics, Vol. 28, No. 4b, pp. 1135-115, November 1995

Posted: 31 Mar 2013

See all articles by Tony S. Wirjanto

Tony S. Wirjanto

University of Waterloo - School of Accounting and Finance; University of Waterloo, Department of Statistics & Actuarial Science

Date Written: 1995

Abstract

This paper considers a general permanent-income model in which a fraction of consumers in the economy is liquidity constrained. Consumption growth rate for these individuals is related to the growth rate of their income and the level of real interest rates. The interest-rate coefficient is predicted to be smaller in the presence of liquidity constraints. Empirically, liquidity constraints are found to be important, and the estimated intertemporal elasticity of substitution parameter is much larger than the one obtained by estimating the standard representative agent model. Lastly, there is some evidence of structural changes over the sample period, which are associated with the 1982 recession.

Keywords: Asset Pricing, Consumption, Permanent Income, Current Income, Liquidity Constraint, Generalized Method of Moments

JEL Classification: C13, C22, C32, C52, D91, G12, E21

Suggested Citation

Wirjanto, Tony S., Aggregate Consumption Behaviour and Liquidity Constraints: The Canadian Evidence (1995). Canadian Journal of Economics, Vol. 28, No. 4b, pp. 1135-115, November 1995, Available at SSRN: https://ssrn.com/abstract=2241857

Tony S. Wirjanto (Contact Author)

University of Waterloo - School of Accounting and Finance ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1
Canada
519-888-4567 x35210 (Phone)

HOME PAGE: http://https://uwaterloo.ca/statistics-and-actuarial-science/people-profiles/tony-wirjanto

University of Waterloo, Department of Statistics & Actuarial Science ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1
Canada
519-888-4567 x35210 (Phone)
519-746-1875 (Fax)

HOME PAGE: http://math.uwaterloo.ca/statistics-and-actuarial-science/people-profiles/tony-wirjanto

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