Excess sensitivity of consumption, liquidity constraints, and mandatory saving

Cheolbeom Park, Pei Fang Lim

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

Using Singapore mandatory saving system, it is examined whether liquidity constraint is a major reason for the excess-sensitivity of consumption to predictable income growth. Although the mandatory saving rate for employees could be a good measure for the financial condition of a liquidity-constrained consumer, it is found, through the nonlinear instrumental variable estimation, that consumption growth is not sensitive to changes in the mandatory saving rate for employees. This finding suggests that liquidity constraints would not be a major reason for the excess-sensitivity puzzle.

Original languageEnglish
Pages (from-to)771-774
Number of pages4
JournalApplied Economics Letters
Volume11
Issue number12
DOIs
Publication statusPublished - 2004 Oct 10

ASJC Scopus subject areas

  • Economics and Econometrics

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