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- Title
DISEQUILIBRIUM, BUFFER STOCKS AND CONSUMERS' EXPENDITURE ON NON-DURABLES.
- Authors
Cuthbertson, Keith; Barlow, David
- Abstract
Abstract--We examine the importance of a disequilibrium real balance effect on non-durable consumers' expenditure in the UK. Using cointegration techniques and the Johansen procedure we first establish a desired long-run demand function for liquid assets depending on income, wealth and a set of interest rates. Deviations of liquidity from this desired level cause changes in consumption. Thus interest rates do not influence consumption via intertemporal substitution but via its effect on disequilibrium liquidity. Consumption is modelled in an error-correction framework and is also found to depend on income and financial wealth. Both the disequilibrium liquidity and wealth terms may be picking up the effects of financial liberalisation (e.g. 'mortgage leak') on consumption as funds released will be temporarily held in financial assets. We also find some evidence that changes in the distribution of income have an independent effect on aggregate consumption.
- Subjects
UNITED Kingdom; ECONOMIC equilibrium; CONSUMPTION (Economics); LIQUIDITY (Economics); NONDURABLE goods; BUFFER stocks; INCOME inequality
- Publication
Review of Economics & Statistics, 1991, Vol 73, Issue 4, p643
- ISSN
0034-6535
- Publication type
Article
- DOI
10.2307/2109403