Aggregate consumption behaviour with time-nonseparable preferences and liquidity constraints

This paper estimates and tests several versions of the consumption-based asset pricing model extended to allow for time-nonseparable preferences and/or liquidity constraint proxies, using Canadian aggregate data. It is found that a habit-persistence effect uncovered in the time-nonseparable preference model is due to the model's misspecification and that liquidity constraints have significant effects on an individual's intertemporal consumption behaviour.