an empirical study of the rule of thumb consumption model in five east asian countries we investigate campbell and mankiw s rule of thumb consumption model using data from five east asian countries we find that the fraction of income attributed to the rule of thumb consumers are generally substantial for these countries in particular the fractions for them are generally higher than those of oecd countries found in previous studies furthermore the estimates of the fractions are robust to variant specifications of the rule of thumb consumption model these results are favourable to he liquidity constraint justification of the rule of thump consumption model

international credit supply shocks abstract house prices and exchange rates can potentially amplify the expansionary effect of capital inflows we first set up a model of collateralized borrowing in domestic and foreign currency with international financial intermediation in which a change in leverage of global intermediaries leads to an international credit supply increase in this environment we illustrate how house price increases and exchange rates appreciations contribute to fueling the boom by inflating the value of collateral we then document empirically in a panel var model for 50 advanced and emerging countries estimated with quarterly data from 1985 to 2012 that an increase in the leverage of us broker dealers also leads to an increase in cross border credit flows a house price and consumption boom a real exchange rate appreciation and a current account deterioration consistent with the transmission in the model finally we study the sensitivity of the consumption and asset price response to such a shock and show that country differences are associated with the level of the maximum loan to value ratio and the share of foreign currency denominated credit

testing liquidity constraints in 10 asian developing countries an error correction model approach an error correction model is used to estimate the fraction of consumers who are liquidity constrained in 10 asian developing countries our estimates of the fraction of consumers who are liquidity constrained range between 0 25 and 0 98 we further investigate whether financial liberalization has resulted in the reduction of liquidity constraints in these countries however the results find support for this only in the cases of south korea sri lanka and taiwan

external debt capital flight and political risk abstract this paper explains the simultaneous occurence of large external debts private capital outflows and low domestic capital formation we consider a general equilibrium model in which two government types with conflicting distributional goals randomly alternate in office uncertainty over the fiscal policies of future governments generates capital flight and small domestic investment and induces the government to overaccumulate external debt the model also predicts that left wing governments are more inclined to restrict capital outflows than right wing governments finally we examine how political uncertainty affects the risk premium and how debt repudiation may occur after a regime change

income risk and farm consumption behavior abstract using panel data from illinois grain farmers a direct test of the relationship between income risk and farm consumption behavior is conducted the estimation results indicate that income risk significantly affects farm consumption and the results are robust using alternative risk measures this finding casts doubt on the relevance of the conventional life cycle permanent income hypothesis which implies that risk has no effect on consumption

the predictability of aggregate consumption growth in oecd countries a panel data analysis we examine aggregate consumption growth predictability we derive a dynamic consumption equation which encompasses relevant predictability factors habit formation intertemporal substitution current income consumption and non separabilities between private consumption and both hours worked and government consumption we estimate this equation for a panel of 15 oecd countries over the period 1972 2007 taking into account parameter heterogeneity endogeneity and error cross sectional dependence using a gmm version of the common correlated effects mean group estimator small sample properties are demonstrated using monte carlo simulations the estimation results support income growth as the only variable with significant predictive power for aggregate consumption growth

capital credit constraints and the comovement between consumer durables and nondurables evidence indicates that consumer durables are more flexibly priced than nondurable goods and services in otherwise standard two sector neoclassical sticky price models with flexible durable prices following monetary tightening nondurables decrease but consumer durables increase friction in lending between households can resolve the comovement problem if durable prices are sticky however if durable prices are flexible friction in lending fails to generate joint decline this paper resolves the co movement problem by adding capital into a model with flexible durable prices and friction in lending when capital is needed in production monetary tightening reduces the relative price of durables which induces investment and decreases firms real profits in the short run due to fewer profits remitted from firms savers have a lower disposable income and cannot increase expenditures on consumer durables as much as otherwise as a consequence aggregate consumer durables decrease and there is a joint decline of nondurables and consumer durables

liquidity constraints and the substitutability between private and government consumption the role of military and non military spending i introduction using data for a number of economies we investigate i the relationship between private consumption and two types of government spending military and non military and ii the severity of liquidity constraints because of their importance for macroeconomic modeling in theory and practice 1 both issues have been the subjects of considerable theoretical and empirical investigation on the issue of liquidity constraints the most influential research has relied on hall s 1978 euler equation approach to the permanent income hypothesis in an attempt to reconcile hall s and flavin s 1981 methodologies hayashi 1982 modified hall s martingale result to allow for the possibility that a subset of consumers are liquidity constrained and showed that liquidity constraints can result in consumption s excess sensitivity to current income campbell and mankiw 1989 1990 1991 and jappelli and pagano 1989 have applied hayashi s methodology using data from the u s and several other oecd countries on the substitutability issue aschauer 1985 has modified hall s euler equation to allow for substitutability between government spending and private consumption and found that the two are substitutes for the u s karras 1994 however using a similar approach and data for 30 countries concludes that private and government consumption are better described as complementary or unrelated liquidity constraints and substitutability have been combined in studies by graham and himarios 1991 cushing 1992 and graham 1993 using u s data and by evans and karras 1996 for a number of countries a crucial limitation of most of these studies is the use of aggregate government consumption data which counterintuitively imposes a common substitutability parameter on all components of government spending 2 using recently available time series data for a large number of countries the present paper relaxes this restriction by decomposing government consumption into military and non military components enabling us to separately identify their relationship to private consumption the allocation of government consumption between military and non military functions has varied greatly across countries the appendix reports the average size of military and non military government shares in gdp as well as the military non military ratio by country over the 1970 1989 period average military expenditure as a fraction of gdp for example has ranged in our sample from 0 11 in mexico to 12 30 in jordan similarly the fraction of government consumption absorbed by military expenditure has ranged from 1 09 in mauritius to 66 82 in poland this sizable variability is promising in terms of cross sectional identification power but it also suggests that the estimated parameters must not be assumed to be common across countries the estimated model is derived in section ii which combines liquidity constraints and substitutability by nesting the approaches of hayashi 1982 and aschauer 1985 in the same section we discuss data sources and the estimation strategy which permits the estimated parameters to vary by country in a way that helps determine how they are influenced by country specific factors section iii estimates the model for a panel of the 66 countries for which annual data on all series are available for the 1970 1989 period the paper s main conclusions are given in section iv ii methodology and data we assume that consumers in economy i at time t derive utility from effective consumption c sup which we define as 1 mathematical expression omitted where c is private consumption g sup m and g sup nm are the military and non military components of government consumption the parameters theta sup m and theta sup nm measure the degree of substitutability between c and g sup m and c and g sup nm respectively

presidential cycles and time varying bond stock market correlations evidence from more than two centuries of data abstract utilizing a dcc garch model to capture time varying correlations we show that democratic administrations are generally associated with lower degree of co movement between the stock and government bond returns the findings are in line with the documented presidential cycle effect on stock market returns and corroborate recent evidence that when risk aversion is high agents tend to elect the democratic party

earnings uncertainty and precautionary saving abstract we test for the presence of precautionary saving using a self reported measure of earnings uncertainty drawn from the 1989 italian survey of household income and wealth the effect of uncertainty on wealth accumulation is consistent with the theory of precautionary saving and with decreasing prudence but explains only a small fraction of saving the results cast doubts on the empirical relevance of precautionary saving in response to earnings uncertainty but are not in contrast with the importance of the precautionary motive per se beside earnings uncertainty other risks such as health and mortality may be important determinants of wealth accumulation

inequality and mortality long run evidence from a panel of countries we investigate whether changes in economic inequality affect mortality in rich countries to answer this question we use a new source of data on income inequality tax data on the share of pretax income going to the richest 10 of the population in australia canada france germany ireland the netherlands new zealand spain sweden switzerland the uk and the us between 1903 and 2003 although this measure is not a good proxy for inequality within the bottom half of the income distribution it is a good proxy for changes in the top half of the distribution and for the gini coefficient in the absence of country and year fixed effects the income share of the top decile is negatively related to life expectancy and positively related to infant mortality however in our preferred fixed effects specification these relationships are weak statistically insignificant and likely to change their sign nor do our data suggest that changes in the income share of the richest 10 affect homicide or suicide rates

modeling private investment in egypt abstract this paper presents an empirical model of private investment that takes into account certain features of a developing economy such as the oligopolistic structure of markets putty clay technology the inelastic supply of non traded capital goods and financial repression the model is tested on egyptian data using error correction and cointegration the results for egypt indicate that at the macroeconomic level private investment depends on mark ups internal financing demand and the cost of investment goods defined not as the interest rate but as the outcome of the interaction of supply and demand in the market for capital goods the effects of government policy on private investment are mixed with some evidence of crowding out in credit markets and of crowding in as a result of government investment in infrastructure

sensitivity of consumption to income and to government purchases some specification and estimation issues the paper derives a nonlinear error correction model ecm for consumption and shows that existing models that are based on quadratic utility combine permanent income and current income consumption and nest or could nest the hypothesis of substitutability between private consumption and government purchases are special cases of the ecm the importance of some econometric issues that have not received proper attention in the literature is demonstrated by estimating the models using us aggregate quarterly data 1953 1 1992 4 the evidence suggests that the ecm produces more reliable estimates than do the existing restrictive models

on the amplification role of collateral constraints abstract this letter explores the role of costly liquidation of the collateralized asset in a stochastic version of the kiyotaki and moore 1997 model we document that the degree of inefficiency in the debt enforcement procedure plays a key role in the endogenous amplification of productivity shocks generated by collateral constraints

world public debt and real interest rates real interest rates appear to have risen in virtually all industrialized countries in the 1980s and 1990s relative to levels that prevailed in earlier decades there is concern that this may reflect higher public debt which is crowding out private sector activity there has also been increasing international capital market integration implying that interest rates in any country may be sensitive to global fiscal developments this paper estimates the effects of such fiscal developments on real interest rates in nine industrial countries the results imply that the increase in oecd wide government debt since the late 1970s was a major factor in the rise in real interest rates copyright 1999 by oxford university press

precautionary saving an explanation for excess sensitivity of consumption the permanent income hypothesis under certainty equivalence yields a martingale consumption process empirically this hypothesis is rejected because consumption is excessively sensitive to anticipated income one approach to account for excess sensitivity is to relax certainty equivalence by using utility functions that induce precautionary saving this article analyzes a hyperbolic absolute risk aversion utility function empirically some reasonable parameterizations of this specification allow one to match the excess sensitivity associated with the data these parameterizations also permit one to account for the excess smoothness problem excess sensitivity and excess smoothness however do not reflect the same phenomenon

creation of financial markets in previously centrally planned economies abstract one of the key issues in reforming previously centrally planned economies is the creation of financial markets in the present paper the macroeconomic consequences of their introduction are investigated given the impossibility of the immediate introduction of a complete set of markets in the transition phase the second best theorem applies using an overlapping generation model it is shown that the existence of financial markets allows the choice of different combinations of growth and consumer s welfare given the existing trade off between these two targets financial markets can exist under different ownership schemes in the context of the model chosen it is shown that it is impossible to obtain unequivocal conclusions about the sequence of financial reforms and the optimal ownership scheme thus it is necessary to judge on a case by case basis and caution is suggested in the policy prescriptions

non linear adjustments on the excess sensitivity of consumption with liquidity constraints abstractthis article investigates the role of domestic credit markets in explaining the excess sensitivity of private consumption to disposable income using heterogeneous panel data of 19 oecd countries over the last two decades we find that the degree of the excess sensitivity has decreased as the liquidity constraints of households have been alleviated the estimated time varying coefficients for the marginal propensity to consume vary between 0 16 for the countries with low liquidity constraints and 0 38 for those with high liquidity constraints we also provide evidence that the excess sensitivity has been more prominent after the global financial crisis in some advanced countries such as japan spain and the united states where sharp deleveraging of households has been ongoing

financial deregulation and consumption in the united kingdom the last decade has seen widespread deregulation of domestic financial markets in the united kingdom this paper uses regional data to investigate the connection between consumption and financial deregulation it is concluded that deregulation has led to a significant increase in the forward looking nature of aggregate consumption copyright 1993 by mit press

consumption and capital market imperfections an international comparison the excess sensitivity of consumption to current income fluctuations is higher in countries where consumers borrow less low levels of consumer debt can result either from capital market imperfections or from a low demand for loans the evidence suggests that the former view is more appropriate than the latter and thus supports the hypothesis that excess sensitivity may be attributed to liquidity constraints rather than to other factors copyright 1989 by american economic association

aggregate consumption behaviour and liquidity constraints the canadian evidence this paper considers a general permanent income model in which a fraction of consumers in the economy is liquidity constrained consumption growth rate for these individuals is related to the growth rate of their income and the level of real interest rates the interest rate coefficient is predicted to be smaller in the presence of liquidity constraints empirically liquidity constraints are found to be important and the estimated intertemporal elasticity of substitution parameter is much larger than the one obtained by estimating the standard representative agent model lastly there is some evidence of structural changes over the sample period which are associated with the 1982 recession

testing the stochastic implications of the life cycle permanent income hypothesis using uk regional time series data this paper applies exclusion tests of the pure life cycle permanent income hypothesis lcpih to time series data on each of the eleven standard regions of the uk data are annual and extend from 1975 to 1994 the results obtained suggest that there are considerable differences in consumption behaviour across the regions theory has indicated that a departure of consumption behaviour from that predicted by the lcpih can occur because of a change in unemployment consequently a comparison is undertaken of the empirical results obtained for the eleven regions and the respective unemployment movements following this comparison it is possible to conclude that the contrasting unemployment experiences of the regions of the uk have contributed significantly to yet cannot account for fully the observed differences in consumption behaviour

effects of transitory shocks to aggregate output on consumption in poor countries this paper provides instrumental variables estimates of the response of aggregate private consumption to transitory output shocks in poor countries to identify exogenous unanticipated idiosyncratic and transitory variations in national output we use year to year variations in rainfall as an instrumental variable in a panel of 39 sub saharan african countries during the period 1980 2009 our estimates yield a marginal propensity to consume out of transitory output of around 0 2 to explain this result we show using instrumental variables techniques that there is a significant negative effect of transitory output shocks on net current transfers and a significant positive and quantitatively large effect on the trade balance an important implication is that frictions to private financial flows do not necessarily imply large effects of transitory shocks to aggregate output on private consumption in poor countries

liquidity constraints a cross section analysis of the housing purchase behavior of japanese this paper focuses on the existence of liquidity constraints on housing purchases by japanese households in order to assess the impact of liquidity constraints the author analyzes the housing purchase behavior of worker households which rent and in which the household head was under the age of forty five from the national survey of family income and expenditure compiled by the statistics bureau liquidity constraints emerge as the most important factor in determining housing purchase behavior copyright 1993 by mit press