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Credit Constraints and Consumer Spending

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Author Info
Kimberly Beaton
Abstract

This paper examines the relationship between aggregate consumer spending and credit availability in the United States. The author finds that consumer spending falls (rises) in response to a reduction (increase) in credit availability. Moreover, she provides a formal assessment of the possibility that credit availability is particularly important for consumer spending when it undergoes large changes. In this respect, she estimates a consumption function in which only large expansions and contractions in credit affect spending. She concludes that large changes in credit availability are particularly important for consumers' spending decisions. As should be expected, these periods tend to be associated with periods of high economic uncertainty. These results show that credit availability should be taken into account when modeling and forecasting consumer spending.

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File URL: http://www.bankofcanada.ca/en/res/wp/2009/wp09-25.pdf
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Publisher Info
Paper provided by Bank of Canada in its series Working Papers with number 09-25.

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Length: 28 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:bca:bocawp:09-25

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Related research
Keywords: Credit and credit aggregates; Domestic demand and components; Recent economic and financial developments;

Find related papers by JEL classification:
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
E27 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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This page was last updated on 2009-11-24.

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