NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Testing Ricardian Neutrality with an Intertemporal Stochastic Model

Leonardo Leiderman, Assaf Razin

NBER Working Paper No. 2258 (Also Reprint No. r1132)
Issued in May 1987
NBER Program(s):   ITI   IFM

The purpose of this paper is to develop and estimate a stochastic-intertemporal model of consumption behavior and to use it for testing a version of the Ricardian-equivalence proposition with time series data. Two channels that may give rise to deviations from this proposition are specified: Finite horizons and liquidity constraints. In addition, the model incorporates explicitly the roles of taxes, substitution between public , and private consumption, and different degrees of consumer goods' durability. The evidence, based on data for Israel in the first half of the 1980s, supports the Ricardian neutrality specification, yielding plausible estimates for the behavioral parameters of the aggregate consumption function.

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Document Object Identifier (DOI): 10.3386/w2258

Published:

  • Journal of Money, Credit and Banking, Vol. 20, No. 1, (February 2000). citation courtesy of
  • Financial Crises in Emerging Markets, Glick, Reuven, Ramon Moreno and Mark Speigel, eds., Cambridge: Cambridge University Press, 2000, chapter 8.

 
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