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Household borrowing and consumption in Spain


Author Info

  • Carmen Martínez-Carrascal

    (Banco de España)

  • Ana del Río

    (Banco de España)

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    This paper aims at analysing the impact of household borrowing on consumption. These variables are modelled jointly in a Vector Error Correction Model (VECM) where labour income, wealth variables and nominal interest rates are also included. The main estimation result is that deviations of borrowing from its long-run trend have a significant impact on consumption: when lending is above (below) its long-run level, future consumption contracts (expands). This evidence is also, found in a simpler model in which consumption is not modelled explicitly. In addition, when consumption departs from its long-run level, it seems to be an indicator of changes in future labour income.

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    File Function: First version, December 2004
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    Bibliographic Info

    Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0421.

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    Length: 38 pages
    Date of creation: Dec 2004
    Date of revision:
    Handle: RePEc:bde:wpaper:0421

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    Related research

    Keywords: household debt; consumption; error correction;

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