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Liquidity constraints and time non-separable preferences

Published online by Cambridge University Press:  17 August 2016

Jérôme Adda  and
Raouf Boucekkine
Jérôme Adda
Affiliation:
INRA CREST and CEPREMAP, France
Raouf Boucekkine
Affiliation:
University Carlos III, Spain
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Summary

We present an intertemporal model of consumption and savings incorporating liquidity constraints and non separable preferences. We solve the problem numerically and characterize the optimal consumption behavior. We explore the traditional puzzles highlighted in the empirical literature as excess smoothness of consumption, its excess sensitivity to current income and its excess persistence. We show that a model with durability and liquidity constraints is able to reproduce some of the stylized facts. Next we show that some of the econometric tests are not robust and can mistake liquidity constraints for habit formation. Hence previous results establishing habit formation on US data should be interpreted with caution.

Résumé

Résumé

Dans cet article, nous présentons un modèle intertemporel de consommation et d’épargne incorporant les contraintes de liquidité et des préférences non-séparables. Nous résolvons le problème numériquement et caractérisons le comportement optimal de consommation. Nous explorons les puzzles traditionnels soulignés dans la littérature empirique comme étant des comportement de lissage de la consommation, une sensibilité au revenu courant et une persistance excessive. Nous montrons qu’un modèle avec persitance et contraintes de liquidité est capable de reproduire certains des faits stylisés. En suit nous montrons que quelques-uns des tests econometriques ne sont pas robustes et peuvent induire en erreur quant aux contraintes de liquidité pour la formation d’habitude. Donc, les résultats établissant la formation d’habitude sur des données US doivent être interprétés avec prudence.

Keywords

D91E21C63D91E21C63
Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 62 , Issue 3-4 , 1996 , pp. 377 - 402
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1996 

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Footnotes

(*)

The paper was written while the first author was visiting Boston University. We are grateful for comments by Russ Cooper, Simon Gilchrist, Pierre Malgrange and participants in seminars at CEPREMAP, Université Catholique de Louvain-la-Neuve, INSEE and INRA-Rennes and two referees. The usual disclaimers applies.

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