Identifying preferences when households are financially constrained
Date
2023-12ISSN
1096-6099Publisher
ElsevierSource
Review of Economic DynamicsVolume
51Pages
521-546Google Scholar check
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This paper shows that utilizing information on the extensive margin of financially constrained households can narrow down the set of admissible preferences in a large class of macroeconomic models. Estimates based on Spanish aggregate data provide further empirical support for this result and suggest that accounting for this margin can bring estimates closer to microeconometric evidence. Accounting for financial constraints and the extensive margin is shown to matter for empirical asset pricing and quantifying distortions in financial markets.