Unveiling Income as a Measure of Liquidity

Abstract

The concept of liquidity is complex and multi-dimensional, and has been extensively studied in economic and financial research. To quantify liquidity, researchers have employed a range of proxies, with household income frequently used as a primary indicator of household liquidity. This paper questions the reliability of household income as a proxy for liquidity. By leveraging demographic and shopping behavior data, it provides an alternative estimate of household liquidity and validates this approach by examining the influence of Economic Stimulus Payments on spending behavior. The findings indicate that integrating shopping behavior with demographic data offers a more nuanced and accurate assessment of household liquidity.