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Financial Liberalization and the Permanent Income Hypothesis

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  • Blundell-Wignall, Adrian
  • Browne, Frank
  • Tarditi, Alison

Abstract

This paper addresses the question of whether financial liberalization and innovation have significantly altered consumption behavior by reducing liquidity constraints as capital markets become more flexible. A consumption model, in which the permanent income hypothesis and extreme Keynesian consumption functions are nested as special cases, is the starting point for this analysis. Estimated values for the sensitivity of consumption to current income for different time periods and for several OECD countries are assessed. These results are then compared in the light of their various econometric properties, country-specific liberalization measures, and a variety of proxies reflecting changing liquidity constraints. Copyright 1995 by Blackwell Publishers Ltd and The Victoria University of Manchester

Suggested Citation

  • Blundell-Wignall, Adrian & Browne, Frank & Tarditi, Alison, 1995. "Financial Liberalization and the Permanent Income Hypothesis," The Manchester School of Economic & Social Studies, University of Manchester, vol. 63(2), pages 125-144, June.
    • Handle: RePEc:bla:manch2:v:63:y:1995:i:2:p:125-44
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    Cited by:

    1. L. Pozzi & F. Heylen & M. Dossche, 2002. "Government debt and the excess sensitivity of private consumption to current income: an empirical analysis for OECD countries," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 02/155, Ghent University, Faculty of Economics and Business Administration.
    2. Bacchetta, Philippe & Gerlach, Stefan, 1997. "Consumption and credit constraints: International evidence," Journal of Monetary Economics, Elsevier, vol. 40(2), pages 207-238, October.
    3. de Brouwer,Gordon, 1999. "Financial Integration in East Asia," Cambridge Books, Cambridge University Press, number 9780521651486, October.
    4. Sarantis, Nicholas & Stewart, Chris, 2003. "Liquidity constraints, precautionary saving and aggregate consumption: an international comparison," Economic Modelling, Elsevier, vol. 20(6), pages 1151-1173, December.
    5. Luciano Fanti & Luca Gori, 2013. "Fertility-related pensions and cyclical instability," Journal of Population Economics, Springer;European Society for Population Economics, vol. 26(3), pages 1209-1232, July.
    6. Nicolas de Roos & Bill Russell, 1996. "Towards an Understanding of Australia’s Co-movement with Foreign Business Cycles," RBA Research Discussion Papers rdp9607, Reserve Bank of Australia.
    7. Luciano Fanti & Luca Gori & Cristiana Mammana & Elisabetta Michetti, 2018. "A model of growth with inherited tastes," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 41(2), pages 163-186, November.
    8. Muzafar Shah Habibullah & Peter Smith & W. N. W. Azman-Saini, 2006. "Testing liquidity constraints in 10 Asian developing countries: an error-correction model approach," Applied Economics, Taylor & Francis Journals, vol. 38(21), pages 2535-2543.
    9. Luciano, Fanti & Luca, Gori & Cristiana, Mammana & Elisabetta, Michetti, 2016. "Complex dynamics in an OLG model of growth with inherited tastes," MPRA Paper 69906, University Library of Munich, Germany.
    10. Hansen, Hermann-Josef, 1996. "Der Einfluß der Zinsen auf den privaten Verbrauch in Deutschland," Discussion Paper Series 1: Economic Studies 1996,03, Deutsche Bundesbank.
    11. Guy Debelle & Bruce Preston, 1995. "Consumption, Investment and International Linkages," RBA Research Discussion Papers rdp9512, Reserve Bank of Australia.
    12. Hansen, Hermann-Josef, 1996. "The impact of interest rates on private consumption in Germany," Discussion Paper Series 1: Economic Studies 1996,03e, Deutsche Bundesbank.
    13. Gordon de Brouwer, 1996. "Consumption and Liquidity Constraints in Australia and East Asia: Does Financial Integration Matter?," RBA Research Discussion Papers rdp9602, Reserve Bank of Australia.
    14. Taylor, Alan M, 2001. "Potential Pitfalls for the Purchasing-Power-Parity Puzzle? Sampling and Specification Biases in Mean-Reversion Tests of the Law of One Price," Econometrica, Econometric Society, vol. 69(2), pages 473-498, March.
    15. Robert Woods, 2004. "Fiscal Stabilisation and EMU," CESifo Working Paper Series 1338, CESifo.

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