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We show that firms' individually optimal liquidity management results in socially inefficient boom-and-bust patterns. Financially constrained firms decide on the level of their liquid resources facing cash-flow shocks and time-varying investment opportunities. Firms' liquidity management decisions generate simultaneous waves in aggregate cash holdings and investment, even if technology remains constant. These investment waves are not constrained efficient in general, because the social and private value of liquidity differs. The resulting pecuniary externality affects incentives differentially depending on the state of the economy, and often overinvestment occurs during booms and underinvestment occurs during recessions. In general, policies intended to mitigate underinvestment raise prices during recessions, making overinvestment during booms worse. However, a well-designed price-support policy will increase welfare in both booms and recessions. [ABSTRACT FROM AUTHOR]

This paper estimates a structural model of optimal life‐cycle consumption expenditures in the presence of realistic labor income uncertainty. We employ synthetic cohort techniques and Consumer Expenditure Survey data to construct average age‐profiles of consumption and income over the working lives of typical households across different education and occupation groups. The model fits the profiles quite well. In addition to providing reasonable estimates of the discount rate and risk aversion, we find that consumer behavior changes strikingly over the life cycle. Young consumers behave as buffer‐stock agents. Around age 40, the typical household starts accumulating liquid assets for retirement and its behavior mimics more closely that of a certainty equivalent consumer. Our methodology provides a natural decomposition of saving and wealth into its precautionary and life‐cycle components. [ABSTRACT FROM AUTHOR]

Presents abstracts of studies presented at a convention in Rome, Italy in September 1965. 'Adjustment Lags in Corporate Liquid Assets,' by G.S. Maddala and Robert C. Vogel; 'Patterns of Corporate Financial Behavior: A Canonical Analysis,' by D.E. Farrar and R.R. Glauber; 'An Industry Study of Corporate Profits,' by Michael K. Evans.

Analyzes a short-run consumption function with emphasis on the role of liquid assets. Problems of autocorrelation in distributed lag schemes; Relationship between consumption and expected income; Role of liquid assets in determining consumption expenditures.