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Soft liquidity constraints and precautionary saving

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  • Emilio Fernandez-Corugedo

Abstract

The implications for consumption and saving behaviour are explored, when households are allowed to borrow, but face penalties which increase with the amount borrowed. It is shown that the introduction of this type of constraints (soft liquidity constraints) does not lead to consumers behaving very differently from consumers who face constraints which prevent them from borrowing at any time (hard liquidity constraints). However, when hard constraints are relaxed and become soft, the amount of precautionary saving falls.

Suggested Citation

  • Emilio Fernandez-Corugedo, 2002. "Soft liquidity constraints and precautionary saving," Bank of England working papers 158, Bank of England.
    • Handle: RePEc:boe:boeewp:158
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    References listed on IDEAS

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    Cited by:

    1. Aoki, Kosuke & Proudman, James & Vlieghe, Gertjan, 2004. "House prices, consumption, and monetary policy: a financial accelerator approach," Journal of Financial Intermediation, Elsevier, vol. 13(4), pages 414-435, October.
    2. John Muellbauer & Emilio Fernandez-Corugedo, 2004. "Consumer credit conditions in the UK," Money Macro and Finance (MMF) Research Group Conference 2003 70, Money Macro and Finance Research Group.
    3. Emilio Fernandez-Corugedo, 2004. "Consumption Theory," Handbooks, Centre for Central Banking Studies, Bank of England, number 23, April.
    4. Carroll, Christopher D. & Holm, Martin B. & Kimball, Miles S., 2021. "Liquidity constraints and precautionary saving," Journal of Economic Theory, Elsevier, vol. 195(C).
    5. Kosuke Aoki & James Proudman & Gertjan Vlieghe, 2002. "Houses as collateral: has the link between house prices and consumption in the U.K. changed?," Economic Policy Review, Federal Reserve Bank of New York, vol. 8(May), pages 163-177.
    6. James Feigenbaum, 2005. "Heterogeneity vs Uncertainty in Anticipation of a Borrowing Constraint," Working Paper 230, Department of Economics, University of Pittsburgh, revised Jan 2005.
    7. Emilio Fernandez-Corugedo & Simon Price, 2002. "Financial liberalisation and consumers' expenditure: 'FLIB' re-examined," Bank of England working papers 157, Bank of England.
    8. Pelin Berkmen, 2007. "Precautionary Monetary and Fiscal Policies," IMF Working Papers 2007/030, International Monetary Fund.
    9. Emilio Fernandez-Corugedo & John Muellbauer, 2006. "Consumer credit conditions in the United Kingdom," Bank of England working papers 314, Bank of England.
    10. Sebastian Barnes & Garry Young, 2003. "The rise in US household debt: assessing its causes and sustainability," Bank of England working papers 206, Bank of England.

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