Tests for Liquidity Constraints: a Critical Survey

46 Pages Posted: 4 Jul 2004 Last revised: 15 Sep 2022

See all articles by Fumio Hayashi

Fumio Hayashi

National Graduate Institute for Policy Studies; GRIPS

Date Written: October 1985


This paper surveys recent empirical work on tests for liquidity constraints.The focus of the survey is on the tests based on the Euler equation. After examining the technical aspects of the recent tests on aggregate time-series data and on micro data, the survey tries to evaluate their economic significance. The paper concludes that for a significant fraction of the population the behavior of consumption over time is affected in away predicted by credit rationing and differential borrowing and lending rates. However, the available evidence is shown to have failed in providing information necessary to calculate the response of consumption to changes in the time profile of income.The paper attributes the failure to the fact that not much attention in the literature has been paid to the cause of liquidity constraints.

Suggested Citation

Hayashi, Fumio, Tests for Liquidity Constraints: a Critical Survey (October 1985). NBER Working Paper No. w1720, Available at SSRN: https://ssrn.com/abstract=338790

Fumio Hayashi (Contact Author)

National Graduate Institute for Policy Studies ( email )

Roppongi 7-22-1
Tokyo, 106-0032

HOME PAGE: http://https://sites.google.com/site/fumiohayashi/home

GRIPS ( email )

7-22-1 Roppongi, Minato-Ku
Tokyo 106-8677, Tokyo 106-8677

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics