Title: Consumption and Liquidity Constraints: An Empirical Investigation
Abstract: Several recent studies have suggested that empirical rejections of the permanent income/life cycle model might be due to the existence of liquidity constraints. This paper tests the permanent income hypothesis against the alternative hypothesis that consumers optimize subject to a well-specified sequence of borrowing constraints. Implications for consumption in the presence of borrowing constraints are derived and then tested using time-series/cross-section data on families from the Panel Study of Income Dynamics. The results generally support the hypothesis that an inability to borrow against future labor income affects the consumption of a significant portion of the population.
Publication Year: 1989
Publication Date: 1989-04-01
Language: en
Type: article
Indexed In: ['crossref']
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Cited By Count: 1877
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