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    Excess Sensitivity in Consumption without Liquidity Constraint: Evidence from Monthly Household Panel Data

    Ni, Shawn, 1962-
    Seol, Youn, 1973-
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    [PDF] ExcessSensitivityConsumptionLiquidityConstraint.pdf (227.3Kb)
    Date
    2007
    Format
    Working Paper
    Metadata
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    Abstract
    The monthly salaries and allowances of Korean government employees are known in advance but vary greatly throughout the year. Using a large Korean monthly panel data set from 1994 to 2003, we examine how nondurable consumption expenditure in households headed by government employees responds to predictable income changes. We find excess sensitivity in consumption during the pre-Asian financial crisis era in households headed by young government employees with low liquid assets or low income. These household features are commonly associated with liquidity constraints. Further analysis shows that despite the apparent association, liquidity constraint is not the most convincing explanation for the excess sensitivity. Instead, the empirical finding is consistent with the theory that certain households deviate from consumption smoothing when the effort involved exceeds the welfare gained.
    URI
    http://hdl.handle.net/10355/2562
    Part of
    Working papers (Department of Economics);WP 07-14
    Part of
    Economics publications
    Citation
    Department of Economics, 2007
    Collections
    • Economics publications (MU)

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