Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/105935
Authors: 
van Treeck, Till
Year of Publication: 
2010
Series/Report no.: 
IMK Working Paper 13/2010
Abstract: 
Various deviations from the Permanent Income consumption model with rational expectations have been discussed in the literature, including loss aversion and liquidity constraints. In the existing literature, these two types of consumption asymmetry are usually considered as mutually exclusive. Using a single data set for US personal consumption, income and wealth for the period 1953q1-2007q3, we show that evidence of either loss aversion or liquidity constraints can indeed be produced, depending on the theoretical and econometric framework applied. We then apply a synthetic asymmetric error correction model that distinguishes short-run and long-run asymmetries and helps reconcile the conflicting results from the previous literature. Our findings can also be interpreted in the context of the secular decline in the US personal savings rate before the outbreak of the financial crisis in 2007.
Subjects: 
Asymmetric error correction model
consumer economics
aggregate consumption and wealth
JEL: 
C22
D11
D12
E21
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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