Consumption Excess Sensitivity, Liquidity Constraints and the Collateral Role of Housing

2006 ◽  
Author(s):  
Andrew Benito ◽  
Haroon Mumtaz
Keyword(s):  
Liquidity Constraints ◽  
Excess Sensitivity

EXCESS SENSITIVITY, LIQUIDITY CONSTRAINTS, AND THE COLLATERAL ROLE OF HOUSING

2009 ◽  
Vol 13 (3) ◽  
pp. 305-326 ◽  
Author(s):  
Andrew Benito ◽  
Haroon Mumtaz
Keyword(s):  
Liquidity Constraints ◽  
Capital Gains ◽  
The Other ◽  
Switching Regression ◽  
Home Equity ◽  
Household Level ◽  
Level Data ◽  
Collateral Channel ◽  
Excess Sensitivity

We estimate consumption Euler equations using U.K. household-level data, employing a switching regression technique. We find excess sensitivity to income for one group of households but not for a second group. The likelihood of excess sensitivity is greater for the young, those without liquid assets, the degree-educated, ethnic minorities and those with negative home equity, consistent with liquidity constraints and buffer-stock saving. Housing capital gains affect the consumption plans of the excess sensitivity group of households, but not the other group. These results are consistent with a “collateral channel” for housing. Around 20%–40% of U.K. households display excess sensitivity.

scholarly journals Liquidity constraints, spillovers, and entrepreneurship: evidence from a cash transfer program

2019 ◽  
Vol 55 (4) ◽  
pp. 1131-1158
Author(s):  
Rafael P. Ribas
Keyword(s):  
Indirect Effect ◽  
Indirect Effects ◽  
Financial Constraints ◽  
Liquidity Constraints ◽  
Cash Transfer ◽  
Direct Effects ◽  
Transfer Program ◽  
Liquidity Shocks ◽  
Liquidity Shock

Abstract This paper exploits a liquidity shock from a welfare program in Brazil to investigate the role of financial constraints, in opposition to general equilibrium mechanisms, in explaining entrepreneurship. Previous research focuses exclusively on how liquidity changes recipients’ behavior through direct effects on reducing constraints. However, liquidity shocks may also produce spillovers from recipients to others and thereby indirectly affect entrepreneurial decisions. This paper presents a method for decomposing the liquidity shock into direct effects associated with relieving individual constraints, and indirect effects associated with spillovers to other individuals. Results suggest that the program, which assists 20 percent of Brazilian households, increased the number of small entrepreneurs by 10 percent. However, this increase is entirely driven by the indirect effect. Further tests suggest that this effect is associated with an increase in private transfers between households. Thus, entrepreneurship tends to respond more to the interaction between households than to financial constraints.

The Precautionary Saving Model

2017 ◽  
Author(s):  
Tullio Jappelli ◽  
Luigi Pistaferri
Keyword(s):  
Liquidity Constraints ◽  
Precautionary Saving ◽  
Income Risk ◽  
Quadratic Utility ◽  
Excess Sensitivity

The chapter removes the assumption of quadratic utility and examines situations in which consumers respond to income risk by increasing current saving to protect against future shocks to income. This motive for saving is called precautionary saving, and it provides an explanation for some of the empirical findings in the literature, such as the observation that people with more volatile incomes tend to save more than individuals with more stable income patterns. Moreover, it can also explain the excess sensitivity of consumption to expected income changes. Indeed, a model with precautionary saving produces a good many predictions similar to those of the model with liquidity constraints.

The Self-Constrained Hand-to-Mouth

2021 ◽  
pp. 1-45
Author(s):  
Michael Gelman
Keyword(s):  
High Frequency ◽  
Liquidity Constraints ◽  
Exponential Model ◽  
Personal Finance ◽  
Buffer Stock ◽  
The Self ◽  
Proximate Cause ◽  
Ultimate Cause ◽  
Stock Model ◽  
Excess Sensitivity

Abstract Many studies have shown that consumption responds to the arrival of predictable income (excess sensitivity). This paper uses a buffer stock model of consumption to understand what causes excess sensitivity and to test which parametrization is consistent with empirical excess sensitivity estimates. Using high frequency granular data from a personal finance app, it finds that while liquidity constraints are a proximate cause, preferences are the ultimate cause of excess sensitivity. Furthermore, it finds that for feasible parameters, a quasi hyperbolic version of the model is more consistent with the level of excess sensitivity relative to a standard exponential model.

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