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Financial Reforms and Consumption Smoothing

Author

Listed:
  • Boileau Martin

    (University of Colorado, 256 UCB, Boulder, CO 80309, USA)

  • Zheng Tianxiao

    (International Monetary Fund, 700 19th St NW, Washington, DC 20431, USA)

Abstract

We study how financial reforms affect the extent of consumption smoothing in a dynamic stochastic general equilibrium model of an emerging economy. Consistent with the empirical literature and reform efforts in South Korea and South Africa, we emphasize the relation between consumer credit and durable purchases, and model reforms as the relaxation of the collateral constraint on lower income households. We find that the relaxation of the collateral constraint accounts for a substantial share of the decline in consumption smoothing experienced in South Korea and South Africa.

Suggested Citation

  • Boileau Martin & Zheng Tianxiao, 2022. "Financial Reforms and Consumption Smoothing," The B.E. Journal of Macroeconomics, De Gruyter, vol. 22(2), pages 575-611, June.
    • Handle: RePEc:bpj:bejmac:v:22:y:2022:i:2:p:575-611:n:9
    DOI: 10.1515/bejm-2020-0148
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    More about this item

    Keywords

    home production; collateral constraint; durable; and consumption volatility; E21; E26; F41; F44;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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