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Household heterogeneity and consumption dynamics in the presence of borrowing and liquidity constraints

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  • Bruno Albuquerque

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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  • Bruno Albuquerque, 2019. "Household heterogeneity and consumption dynamics in the presence of borrowing and liquidity constraints," Applied Economics Letters, Taylor & Francis Journals, vol. 26(6), pages 454-459, March.
    • Handle: RePEc:taf:apeclt:v:26:y:2019:i:6:p:454-459
    DOI: 10.1080/13504851.2018.1486974
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    Cited by:

    1. Milan van den Heuvel & Benjamin Vandermarliere & Koen Schoors, 2019. "The Asymmetric Response Of Consumption To Income Changes And The Effect Of Liquid Wealth," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 19/958, Ghent University, Faculty of Economics and Business Administration.
    2. Sipeng Zeng, 2024. "How Shopping Platforms Play a Role in the Credit Card Industry," Financial Economics Letters, Anser Press, vol. 3(2), pages 16-25, June.
    3. Bruno Albuquerque, 2024. "Corporate debt booms, financial constraints, and the investment nexus," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 39(5), pages 766-789, August.

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