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Long-run credit growth in the US

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  • Durkin, Thomas A.
  • Ord, Keith
  • Walker, David A.

Abstract

The paper explores the long-term income elasticity of consumer and mortgage credit growth since World War II. It also examines other economic factors, to determine whether recent credit use is anomalous. Two-stage least squares show consumer credit income elasticity to be slightly below 1.0, taking other factors into account. A vector autoregressive error correction (VAREC) model for cointegrated variables with unit roots determine short-run and long-run credit impact multipliers which are consistent with the elasticities. Except for 1974-1979, the long-run consumer credit impact multiplier of 0.23 is very close to the debt-income limit that Enthoven projected as long ago as 1957. These results are very different from the simplistic media perspectives.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economics and Business.

Volume (Year): 62 (2010)
Issue (Month): 5 (September)
Pages: 383-400

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Handle: RePEc:eee:jebusi:v:62:y::i:5:p:383-400

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Web page: http://www.elsevier.com/locate/jeconbus

Related research

Keywords: Consumer credit;

References

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  1. David B. Gross & Nicholas S. Souleles, 2002. "Do Liquidity Constraints And Interest Rates Matter For Consumer Behavior? Evidence From Credit Card Data," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 149-185, February.
  2. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
  3. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  4. Kathleen W. Johnson, 2005. "Recent developments in the credit card market and the financial obligations ratio," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Aut, pages 473-486.
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