Are Countries with Official International Restrictions "Liquidity Constrained?"

40 Pages Posted: 15 Jul 2000 Last revised: 4 Apr 2008

See all articles by Karen K. Lewis

Karen K. Lewis

University of Pennsylvania - Finance Department; National Bureau of Economic Research (NBER)

Date Written: April 1997


In this paper, I empirically examine consumption smoothing behavior across a broad group of countries using a unique data set that indicates whether residents in a country face an official government restriction. I then ask whether the ex ante consumption movements among restricted countries differ from those of unrestricted countries. To gauge the departure from standard consumption smoothing, I use the Campbell and Mankiw (1989, 1991) approach of regressing consumption growth on income growth and instrumenting with lagged variables. Interestingly, I find that consumption growth for residents in countries that impose international restrictions has a significantly higher coefficient on income growth than for residents in countries without those restrictions. Thus, a greater proportion of consumers facing international restrictions appear to act as though they are liquidity constrained according to the Campbell and Mankiw approach. I also discuss alternative interpretations that do not depend upon liquidity constraints.

Suggested Citation

Lewis, Karen Kay, Are Countries with Official International Restrictions "Liquidity Constrained?" (April 1997). NBER Working Paper No. w5991, Available at SSRN:

Karen Kay Lewis (Contact Author)

University of Pennsylvania - Finance Department ( email )

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