Is the Dutch consumer a true ricardian? |
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Authors: | Ben J Heudra Hendrik P van Dalen |
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Institution: | (1) Tinbergen Institute, University of Amsterdam, The Netherlands;(2) Tinbergen Institute, OCFEB Erasmus University, The Netherlands;(3) Netherlands Interdisciplinary Demographic Institute, The Netherlands;(4) FEE, University of Amsterdam, Roetersstraat 11, 1018 WB Amsterdam, The Netherlands |
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Abstract: | Summary In this paper the intertemporal optimization approach is adopted in order to estimate an empirical version of Blanchard's (1985) overlapping generations model. The observed sluggishness in consumption is incorporated into the model by recognizing both durability and habit formation as relevant determinants of total consumption. The model is estimated using quarterly data for The Netherlands from 1969:I to 1990:IV. The empirical estimates suggest that the status of the Dutch consumer as a true Ricardian is unambiguously rejected. The results furthermore suggest that this rejection is due to the existence of both liquidity constraints and finite planning horizons.Comments by Peter Broer, Jeroen Kremers, Debora Molenaar, Rick van der Ploeg, Frans Spinnewyn, Casper de Vries, Ed Westerhout and two anonymous referees are very much appreciated. Elbert Dijkgraaf has provided invaluable research assistance. We also thank participants of the OCFEB workshop and the CES seminar at the K.U. Leuven for their comments. |
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Keywords: | Ricardian equivalence intertemporal optimisation habit formation consumption function liquidity constraints finite horizons |
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