From 1994 to 2006, the average household saving rate in the Philippines declined by 5.2 percentage points to about a mere 5% of disposable income. Using data from income and expenditure survey at the household level, this paper explains why households' consumption growth had been higher than...

The consumption of households with liquid financial assets responds much more to transitory income shocks than the permanent-income hypothesis predicts. That is, middle class households with assets act as if they face liquidity constraints. This paper addresses this puzzling observation with a...