Private Consumption Behaviour, Liquidity Constraints and Financial Deregulation in France: A Nonlinear Analysis

Posted: 11 Sep 2000

See all articles by Eric Girardin

Eric Girardin

University Aix-Marseille 2 - GREQAM

Lucio Sarno

University of Cambridge - Judge Business School; Centre for Economic Policy Research (CEPR)

Mark P. Taylor

Washington University in St. Louis - John M. Olin Business School; Centre for Economic Policy Research (CEPR); Brookings Institution

Abstract

This paper examines the effect of financial deregulation on consumption expenditure in France during the period 1970-1993. A nonlinear model for consumption which allows for liquidity constraints through a time-varying parameter dependent on a proxy for financial deregulation is estimated usingnonlinear instrumental variables. It is concluded that in France financial deregulation has significantly reduced liquidity constraints faced by consumers, allowing a higher percentage of the population to smooth consumption over time. Evidence is also provided that the intertemporal elasticity of substitution is not significantly different from zero at conventional nominal levels of significance.

Keywords: consumption, credit, liquidity constraints, Euler equation, financial liberalization, nonlinearity

JEL Classification: E21

Suggested Citation

Girardin, Eric and Sarno, Lucio and Taylor, Mark P., Private Consumption Behaviour, Liquidity Constraints and Financial Deregulation in France: A Nonlinear Analysis. Available at SSRN: https://ssrn.com/abstract=232719

Eric Girardin

University Aix-Marseille 2 - GREQAM ( email )

Centre de la Vieille Charité
Marseille, 13 002
France

Lucio Sarno (Contact Author)

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Mark P. Taylor

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1156
St. Louis, MO 63130-4899
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Brookings Institution ( email )

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

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