Household heterogeneity and consumption dynamics in the presence of borrowing and liquidity constraints |
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Authors: | Bruno Albuquerque |
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Institution: | Ghent University, Ghent, Belgium |
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Abstract: | I study the effects of borrowing and liquidity constraints on the response of consumption to anticipated income changes. Using the PSID over 1999–2013, I find that the well-documented strong excess sensitivity of consumption to income of highly constrained households can be explained by episodes of income increases. In addition, I look into the heterogeneity of households without debt, a group that has been largely disregarded by the literature. My fixed-effects estimates show that only those without debt tend to increase their saving in response to anticipated income declines, irrespective of the amount of liquid assets held. |
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Keywords: | Consumption income highly constrained households household heterogeneity |
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