ARE COUNTRIES WITH OFFICIAL INTERNATIONAL RESTRICTIONS LIQUIDITY CONSTRAINED

In this paper, I empirically examine consumption smoothing behavior ac ross a broad group of countries using a unique data set that indicates whether residents in a country face an official government restrictio n. I then ask whether the ex ante consumption movements among restrict ed countries differ from those of unrestricted countries. To gauge the departure from standard consumption smoothing, I use the Campbell and Mankiw ('Consumption, income, and interest rates: Reinterpreting the time series evidence', In: O.J, Blanchard and S. Fischer, eds., NBER m acroeconomics annual, 1989 (MIT Press, Cambridge, MA, 1989) and 'The r esponse of consumption to income: A cross-country investigation', Euro pean Economic Review 35, 723-756, 1991) approach of regressing consump tion growth on income growth and instrumenting with lagged variables. Interestingly, I find that consumption growth for residents in countri es that impose international restrictions have a significantly higher coefficient on income growth than do residents in countries without th ose restrictions. Thus, a greater proportion of consumers facing inter national restrictions appear to act as though they are liquidity const rained according to the Campbell and Mankiw approach. I also discuss a lternative interpretations that do not depend upon liquidity constrain ts. (C) 1997 Elsevier Science B.V.