Abstract
We use a very accurate panel of all individual spending, income, balances, and credit limits from a personal finance software to document spending responses to the arrival of both regular and irregular income. These payday responses are robust and homogeneous for all income and spending categories throughout the income distribution. Moreover, we find that few people hold little or no liquidity. We then analyze whether people hold liquidity cushions to cope with future liquidity constraints. However, we find that peoples’ responses are consistent with standard models without illiquid savings, in which neither present nor future liquidity constraints are frequently binding.
Original language | English |
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Journal | The Review of Financial Studies |
Volume | 31 |
Issue number | 11 |
Pages (from-to) | 4398–4446 |
Number of pages | 49 |
ISSN | 0893-9454 |
DOIs | |
Publication status | Published - Nov 2018 |