American Economic Journal:
Economic Policy
ISSN 1945-7731 (Print) | ISSN 1945-774X (Online)
Liquidity Constraint Tightness and Consumer Responses to Fiscal Stimulus Policy
American Economic Journal: Economic Policy
vol. 11,
no. 1, February 2019
(pp. 351–79)
Abstract
The marginal interest rate is the price at which a household can access additional liquidity. Consumption theory posits that variation in marginal interest rates across consumers predicts differences in the propensity to spend a stimulus payment. This hypothesis is tested in the context of a Danish 2009 stimulus policy that transformed illiquid pension wealth into liquid wealth. Marginal interest rates are constructed from administrative records with account level information and merged with survey data measuring the spending response to the stimulus policy. The data reveal substantial variation in marginal interest rates across consumers, and these interest rates predict spending responses.Citation
Kreiner, Claus Thustrup, David Dreyer Lassen, and Søren Leth-Petersen. 2019. "Liquidity Constraint Tightness and Consumer Responses to Fiscal Stimulus Policy." American Economic Journal: Economic Policy, 11 (1): 351–79. DOI: 10.1257/pol.20140313Additional Materials
JEL Classification
- D14 Household Saving; Personal Finance
- D15 Intertemporal Household Choice; Life Cycle Models and Saving
- E21 Macroeconomics: Consumption; Saving; Wealth
- E43 Interest Rates: Determination, Term Structure, and Effects
- E62 Fiscal Policy
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