The Labor Force Participation Behavior of Married Women under Conditions of Constraints on Borrowing

O'Brien, Alison; Hawley, Clifford B.

doi:10.2307/145802

“…As stressed by Jackman and Sutton (1982), Brugiavini and Weber (1992) and Chah, Ramey and Starr (1991), the effects that liquidity constraints have on the relationship between durable and non durable consumption are affected on the one hand by the 14 Note that, if the restriction is on net financial wealth and there are at least two assets which are held in non zero quantities and for which there are no specific constraints, one could eliminate ffi by taking the difference of equation (5') for the two assets. This fact could be exploited to test the importance of the Kuh n-Tucker multiplier p. 16 This observation is made, in a fairly informal way, by O'Brien and Hawley (1986).…”

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confidence: 99%

The Intertemporal Allocation of Consumption: Theory and Evidence

Attanasio

¹

1994

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Liquidity constraints and, more generally, imperfections in credit markets, can be extremely important for the interteinporal allocation of consumption and have received a substantial amount of attention in the theoretical and empirical literature on consumption. In the first part of the paper I review the reasons why liquidity constraints are important.Unfortunately, for several reasons, it is not easy to test for the presence of liquidity constraints. Aggregation issues preclude the use of aggregate time series data for such a purpose.Tests based on micro data, however, are complicated by some serious identification problems.If a simple equilibrium model does not fit some data set, one can change the assumptions about the opportunity set available to the economic agents or the specification of their preferences. For instance, empirical evidence that detects excess sensitivity of consumption to income could be explained by liquidity constraints or by non separability between consumption and leisure.However, the available evidence shows that it is possible to find flexible specifications of preferences that fit consumption movements at business cycle frequencies. I also present some simulation evidence that shows that for many plausible parameter configurations, liquidity consuaints are likely to be relevant only for a small proportion of economic agents.In the last part of the paper I present some new evidence on the relevance of liquidity constraints based on debt holding data. The data indicate that the demand for debt of individuals more likely to be liquidity constrained is less elastic to changes in the interest rate.

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The intertemporal allocation of consumption: theory and evidence

Attanasio

¹

1995

Carnegie-Rochester Conference Series on Public Policy

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Liquidity constraints and, more generally, imperfections in credit markets, can be extremely important for the interteinporal allocation of consumption and have received a substantial amount of attention in the theoretical and empirical literature on consumption. In the first part of the paper I review the reasons why liquidity constraints are important.Unfortunately, for several reasons, it is not easy to test for the presence of liquidity constraints. Aggregation issues preclude the use of aggregate time series data for such a purpose.Tests based on micro data, however, are complicated by some serious identification problems.If a simple equilibrium model does not fit some data set, one can change the assumptions about the opportunity set available to the economic agents or the specification of their preferences. For instance, empirical evidence that detects excess sensitivity of consumption to income could be explained by liquidity constraints or by non separability between consumption and leisure.However, the available evidence shows that it is possible to find flexible specifications of preferences that fit consumption movements at business cycle frequencies. I also present some simulation evidence that shows that for many plausible parameter configurations, liquidity consuaints are likely to be relevant only for a small proportion of economic agents.In the last part of the paper I present some new evidence on the relevance of liquidity constraints based on debt holding data. The data indicate that the demand for debt of individuals more likely to be liquidity constrained is less elastic to changes in the interest rate.

show abstract