Liquidity constraints and the behavior of aggregate consumption over the Brazilian Business Cycle
DOI:
https://doi.org/10.1590/1980-53573242mbrjKeywords:
Non-durable consumption, Real business cycle model, VolatilityAbstract
The Brazilian business cycle presents a key feature consisting ofa high volatility of the consumption series. The standard deviation ofthe non-durable consumption seriesreaches 5.26%, almost as high as the volatility ofthe GNP (5.57%) over the period 1970-1998. The failure ofthe standard real business cycle model to capture thisfact could be related to the high credit restriction most consumer faces in the country. The present study aims to present an extended recursive general equilibrium model to better mimic the above empirical evidence, introducing heterogeneous agentsin the model economy characterized by a set of agents who does not behave according to the permanent income hypothesis due to the credit restriction they face everyperiod. The numerical analysis ofthe proposed model economy reproduces the high volatility present in the Brazilian consumption series. However, the correlation between output and investment series is underestimated due to the presence of those agents who cannot smooth out consumption over the business cycle.
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Copyright (c) 2002 Mirta N. S. Bugarin, Roberto Ellery Júnior
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