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Borrowing Restrictions and Wealth Constraints : Implications for Aggregate Consumption

Author: Carl E Walsh; National Bureau of Economic Research.
Publisher: Cambridge, Mass. : National Bureau of Economic Research, 1985.
Series: Working paper series (National Bureau of Economic Research), no. w1629.
Edition/Format:   eBook : Document : EnglishView all editions and formats
Database:WorldCat
Summary:
Recent empirical studies have found that consumption is more sensitive to current income than the life-cycle, permanent income hypothesis would predict. The present paper studies a model in which the fraction of consumers exhibiting excess sensitivity is endogenously determined. The presence of income uncertainty and restrictions on borrowing are shown to generate adistribution of consumption across individuals  Read more...
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Additional Physical Format: Print version:
Walsh, Carl E.
Borrowing restrictions and wealth constraints.
Cambridge, Mass. (1050 Massachusetts Avenue, Cambridge 02138) : National Bureau of Economic Research, 1985
(OCoLC)12577384
Material Type: Document, Internet resource
Document Type: Internet Resource, Computer File
All Authors / Contributors: Carl E Walsh; National Bureau of Economic Research.
OCLC Number: 756573029
Description: 1 online resource.
Series Title: Working paper series (National Bureau of Economic Research), no. w1629.
Responsibility: Carl E. Walsh.

Abstract:

Recent empirical studies have found that consumption is more sensitive to current income than the life-cycle, permanent income hypothesis would predict. The present paper studies a model in which the fraction of consumers exhibiting excess sensitivity is endogenously determined. The presence of income uncertainty and restrictions on borrowing are shown to generate adistribution of consumption across individuals which is consistent with the recent empirical evidence. The aggregate marginal propensity to consume out of transitory income is directly related to the fraction of constrained consumers and exhibits positive serial correlation in the face of serially uncorrelated income shocks.

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