Date of this Version
European Economic Review
In this paper, I empirically examine consumption smoothing behavior across a broad group of countries using a unique data set that indicates whether residents in a country face an official government restriction. I then ask whether the ex ante consumption movements among restricted countries differ from those of unrestricted countries. To gauge the departure from standard consumption smoothing, I use the Campbell and Mankiw (‘Consumption income, and interest rates: Reinterpreting the time series evidence’, In: O.J. Blanchard and S. Fischer, eds., NBER macroeconomics annual, 1989 (MIT Press, Cambridge, MA, 1989) and ‘The response of consumption to income: A cross-country investigation’ European Economic Review 35, 723–756, 1991) approach of regressing consumption growth on income growth and instrumenting with lagged variables. Interestingly, I find that consumption growth for residents in countries that impose international restrictions have a significantly higher coefficient on income growth than do residents in countries without those restrictions. Thus, a greater proportion of consumers facing international restrictions appear to act as though they are liquidity constrained according to the Campbell and Mankiw approach. I also discuss alternative interpretations that do not depend upon liquidity constraints.
© 1997. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
consumption behavior, output growth, international restrictions
Lewis, K. K. (1997). Are Countries With Official International Restrictions ‘Liquidity Constrained’?. European Economic Review, 41 (6), 1079-1109. http://dx.doi.org/10.1016/S0014-2921(97)00056-1
Date Posted: 27 November 2017
This document has been peer reviewed.