Abstract
In this paper, we examine Taiwan's aggregate time series data to see whether the imperfect credit market/liquidity constraint might be a factor contributing to the 'excess sensitivity' of consumption documented in the literature. When the imperfect credit market/liquidity constraint is important in the determination of consumption, the consumption growth should be more responsive to an increase in expected income than a decrease in it. However, we do not find any evidence of this asymmetric response of consumption to expected income. We also find that, in recession periods where liquidity constraints are most likely to affect aggregate consumption, the asymmetric response of consumption to expected income is still absent.