Excess Sensitivity and Asymmetries in Consumption: An Empirical Investigation

JOURNAL OF MONEY, CREDIT, AND BANKING, Vol. 29, No. 2, May 1997

Posted: 5 Feb 1997

See all articles by René Garcia

René Garcia

Université de Montréal - CIREQ - Département de sciences économiques; University of Montreal

Annamaria Lusardi

George Washington University - Department of Accountancy; National Bureau of Economic Research (NBER)

Serena Ng

Columbia Business School - Economics Department

Abstract

Most empirical studies on liquidity constraints classify a consumer as being constrained on the basis of a single indicator such as the asset to income ratio. In this analysis, we model the probability that a consumer faces liquidity constraints as a function of multiple social and economic factors. This probability function is estimated simultaneously with the degree of excess sensitivity of consumption to income in a switching regressions framework. The switching regressions apply optimal weights to the densities for the Euler equations in the two states and are less susceptible to sample misclassification. Our results based on data from the CEX confirm that liquidity constrained consumers are excessively sensitive to variables already known to economic agents. However, there is also evidence that the unconsistent with the theoretical predictions. Further analysis suggests that such behavior could be explained by time-non-separable preferences.

JEL Classification: D12, C23

Suggested Citation

Garcia, René and Lusardi, Annamaria and Ng, Serena, Excess Sensitivity and Asymmetries in Consumption: An Empirical Investigation. JOURNAL OF MONEY, CREDIT, AND BANKING, Vol. 29, No. 2, May 1997. Available at SSRN: https://ssrn.com/abstract=3698

René Garcia

Université de Montréal - CIREQ - Département de sciences économiques ( email )

C.P. 6128, succursale Centre-Ville
3150, rue Jean-Brillant, bureau C-6027
Montreal, Quebec H3C 3J7
Canada
514-985-4014 (Phone)

University of Montreal ( email )

United States

Annamaria Lusardi

George Washington University - Department of Accountancy ( email )

George Washington University School of Business
Washington, DC 20052
United States

HOME PAGE: http://business.gwu.edu/profiles/annamaria-lusardi/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Serena Ng (Contact Author)

Columbia Business School - Economics Department ( email )

420 West 118th Street
New York, NY 10027
United States

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