Several previous studies have attempted to improve on this way of testing the LCPI by examining other data sets.
Jones  is similar to our study in the sense of using housing demand to test the LCPI.
His results thus support the importance of liquidity constraints as contrasted against the pure LCPI hypothesis.
We employ a basic model of the LCPI augmented with a precautionary savings motive.
2] = 1, the first being a weak test of the LCPI hypothesis, the second being a test for the narrowly-defined version of the LCPI hypothesis as derived in our theory section; [b.
These consumers have two characteristics that make them likely to be proper LCPI consumers: (1) the amount spent on the home purchase is not influenced by the bank; (2) current and anticipated future liquidity considerations must be minor, since these households could have obtained a larger (mortgage) loan from the bank or lowered their down payment and would qualify for a home equity loan if future liquidity needs would arise.
Thus, the strict version of the LCPI must be rejected in favor of the model with a precautionary savings motive as is consistent with the numerical results of Zeldes , Caballero , Hubbard, Skinner, and Zeldes , and others.
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