Consuption, income and liquidity constraints : the case of Turkish economy

Ceritoğlu, Evren
The aim of this thesis study is to enlighten the economic relationship among consumption, income and liquidity constraints in Turkish Economy. For this aim, generalized instrumental variables estimation technique (GIVE) is used to estimate reduced-form consumption equations derived by Hall (1978) and improved by Campbell and Mankiw (1989). Estimations are realized for two separate periods of Turkish Economy. For the sub-period of 1987 to 1995, it is observed that a significant part of households consume their current disposable income. It is thought that the presence of liquidity constraints forced households to determine their consumption simply according to their current disposable income. However, it is observed that the dependence of households to disposable income decreased substantially, when analyzed for the overall period of 1987 to 2002. Financial deepening in the economy and the rise of real credit volume contributed to the decline of the level of liquidity constraints and enabled households to allocate their income across subsequent periods evenly. Thus, it is concluded that private consumption behavior is consistent with the Permanent Income / Life- Cycle Consumption theory for 1987 to 2002 period in Turkish Economy.


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Citation Formats
E. Ceritoğlu, “ Consuption, income and liquidity constraints : the case of Turkish economy,” M.S. - Master of Science, Middle East Technical University, 2003.