Abstract
We evaluate the impact of increased income uncertainty and financial liberalization in the US on consumption volatility and household welfare. We estimate Euler equations and measure the volatility of unpredictable changes in consumption as the squared Euler equation residuals. We directly control for liquidity constraints using SCF data on access to credit, and document that despite the increase in household debt between 1983 and 2007, there was no decline in the proportion of liquidity constrained households. Consumption volatility increased significantly over this period, though not as much as income volatility, indicating substantial welfare losses for households. Consumption volatility was significantly higher for liquidity constrained households.
Published Version
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call