The life-cycle model with liquidity constraints produces an Euler equation with unobservable Kuhn-Tucker multipliers. If borrowing restrictions depend on earnings and leisure is a choice variable one can derive an Euler equation involving only observable variables.
This paper presents estimates of the Euler equation on a pseudo (or "synthetic") panel of UK households. Most parameters are well determined and in agreement with the model's predictions. They can therefore be used to evaluate each cohort's Kuhn-Tucker multiplier over the sample period.
Authors
Research Associate University of Padua
Guglielmo is a Research Associate at the IFS and Professor in the Department of Economics at the Faculty of Statistics, Padua University.
Journal article details
- Publisher
- Institut National de la Statistique et des Etudes Economiques
- Issue
- January 1993
Suggested citation
Weber, G. (1993). 'Earnings-Related Borrowing Restrictions : Empirical Evidence from a Pseudo Panel for the U.K.' (1993)
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