Intertemporal consumption, durables and liquidity constraints : A cohort analysis

We provide a theoretical framework to analyse the response of life time maximizing consumers to intertemporal prices of non-durable goods and durable goods when the borrowing limit depends on the market value of the stock of durables owned by the consumer. We use pseudo panel data on purchases of non-durables and durable goods (cars) and demographic characteristics from the UK Family Expenditure Survey, as well as estimates of the durable stock constructed using the UK National Travel Survey, to estimate the equations derived in the first part of the paper. We evaluate the shadow prices of these restrictions, which were significantly positive for younger consumers in the mid-seventies and immediately prior to the 1982 financial liberalisation.