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The interest rate elasticity of aggregate consumption : a time varying parameter approach

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  • Christian C. Starck

    (Bank of Finland)

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    Abstract

    The aim of this note is to examine whether the empirically documented positive interest rate elasticity of aggregate consumption in Finland is an artefact due to the previously widespread credit rationing. The aim is carried out using a novel time valying parameter approach and data from the period 1960-1989. The empirical evidence lendsfurther support for apositive interest rate elasticity of aggregate consumption. The elasticity seems to have increased over time, especially in recent years. To some extent, this mirrors a gradual easening up of credit rationing, which has been particularly rapid in recent years.

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    Bibliographic Info

    Article provided by Finnish Economic Association in its journal Finnish Economic Papers.

    Volume (Year): 4 (1991)
    Issue (Month): 2 (Autumn)
    Pages: 142-153

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    Handle: RePEc:fep:journl:v:4:y:1991:i:2:p:142-153

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    1. Koskela, Erkki & Viren, Matti, 1985. "Consumption Function, Labour Supply Rationing and Borrowing Constraints," Oxford Economic Papers, Oxford University Press, vol. 37(3), pages 500-509, September.
    2. Jackman, Richard & Sutton, John, 1982. "Imperfect Capital Markets and the Monetarist Black Box: Liquidity Constraints, Inflation and the Asymmetric Effects of Interest Rate Policy," Economic Journal, Royal Economic Society, vol. 92(365), pages 108-28, March.
    3. Clements, R T, 1985. "Savings in New Zealand during Inflationary Times: Measurement, Determinants, and Implications," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(3), pages 188-208, June.
    4. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-44, January.
    5. Jappelli, Tullio & Pagano, Marco, 1988. "Consumption and Capital Market Imperfection: An International Comparison," CEPR Discussion Papers 244, C.E.P.R. Discussion Papers.
    6. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-47, February.
    7. Koskela, Erkki & Viren, Matti, 1982. " Inflation, Tight Money and Household Saving Behavior: Finnish Evidence," Scandinavian Journal of Economics, Wiley Blackwell, vol. 84(3), pages 483-92.
    8. Eytan Sheshinski & Vito Tanzi, 1989. "An Explanation of the Behavior of Personal Savings in the United States in Recent Years," NBER Working Papers 3040, National Bureau of Economic Research, Inc.
    9. Stock, James H, 1987. "Asymptotic Properties of Least Squares Estimators of Cointegrating Vectors," Econometrica, Econometric Society, vol. 55(5), pages 1035-56, September.
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