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Borrowing Constraints and Consumption Behavior in Japan

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  • Midori Wakabayashi
  • Charles Yuji Horioka

Abstract

In this paper, we use Japanese micro data to examine what characteristics borrowing-constrained households have and whether borrowing constraints have an important influence on household consumption behavior. We identify borrowing-constrained households using three different indicators, some of which are unique to our data source, and find that the characteristics of households that are likely to be borrowing-constrained differ depending on which of the three indicators we use. We also find that changes in current income have a positive and significant impact on changes in consumption in the case of households that are likely to be borrowing-constrained but not in the case of households that are unlikely to be borrowing-constrained. This result suggests that borrowing constraints have an important influence on household consumption behavior and that the presence of borrowing constraints is one explanation for why the life cycle-permanent income hypothesis does not hold in the real world.

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Paper provided by Institute of Social and Economic Research, Osaka University in its series ISER Discussion Paper with number 0640.

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Date of creation: Aug 2005
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Handle: RePEc:dpr:wpaper:0640

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  1. Carroll Christopher Dixon, 2001. "Death to the Log-Linearized Consumption Euler Equation! (And Very Poor Health to the Second-Order Approximation)," The B.E. Journal of Macroeconomics, De Gruyter, De Gruyter, vol. 1(1), pages 1-38, April.
  2. Fumio Hayashi, 1985. "Tests for Liquidity Constraints: A Critical Survey," NBER Working Papers 1720, National Bureau of Economic Research, Inc.
  3. Sydney Ludvigson & Christina H. Paxson, 2001. "Approximation Bias In Linearized Euler Equations," The Review of Economics and Statistics, MIT Press, vol. 83(2), pages 242-256, May.
  4. Jappelli, Tullio, 1990. "Who Is Credit Constrained in the U.S. Economy?," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 105(1), pages 219-34, February.
  5. Tullio Jappelli & Jörn-Steffen Pischke & Nicholas S. Souleles, 1998. "Testing For Liquidity Constraints In Euler Equations With Complementary Data Sources," The Review of Economics and Statistics, MIT Press, vol. 80(2), pages 251-262, May.
  6. Fumio Hayashi, 1982. "The Effect of Liquidity Constraints on Consumption: Cross-Sectional Analysis," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 516, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. Midori Wakabayashi & Charles Yuji Horioka, 2005. "Borrowing Constraints and Consumption Behavior in Japan," NBER Working Papers 11560, National Bureau of Economic Research, Inc.
  8. repec:fth:pennfi:69 is not listed on IDEAS
  9. Nawata, Kazumitsu, 1995. "Estimation of sample-selection models by the maximum likelihood method," Mathematics and Computers in Simulation (MATCOM), Elsevier, Elsevier, vol. 39(3), pages 299-303.
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Cited by:
  1. Marion Leturcq, 2011. "Do bankers prefer married couples?," Working Papers halshs-00655584, HAL.
  2. Ryan R. Brady, 2006. "Structural Breaks and Consumer Credit: Is Consumption Smoothing Finally a Reality?," Departmental Working Papers, United States Naval Academy Department of Economics 13, United States Naval Academy Department of Economics.
  3. Miki Kohara & Charles Yuji Horioka, 2006. "Do Borrowing Constraints Matter? An Analysis of Why the Permanent Income Hypothesis Does Not Apply in Japan," ISER Discussion Paper, Institute of Social and Economic Research, Osaka University 0663, Institute of Social and Economic Research, Osaka University.
  4. Ryan R. Brady, 2006. "Credit Cards and Monetary Policy: Are Households still liquidity-constrained?," Departmental Working Papers, United States Naval Academy Department of Economics 12, United States Naval Academy Department of Economics.
  5. Ryan R. Brady, 2011. "Consumer Credit, Liquidity, And The Transmission Mechanism Of Monetary Policy," Economic Inquiry, Western Economic Association International, vol. 49(1), pages 246-263, 01.
  6. Maria Pereira & Filipe Coelho, 2013. "Untangling the Relationship Between Income and Subjective Well-Being: The Role of Perceived Income Adequacy and Borrowing Constraints," Journal of Happiness Studies, Springer, Springer, vol. 14(3), pages 985-1005, June.
  7. Kaiji Chen & AyÅŸe Ä°mrohoroÄŸlu & Selahattin Ä°mrohoroÄŸlu, 2007. "The Japanese saving rate between 1960 and 2000: productivity, policy changes, and demographics," Economic Theory, Springer, Springer, vol. 32(1), pages 87-104, July.
  8. Midori Wakabayashi & Charles Yuji Horioka, 2005. "Borrowing Constraints and Consumption Behavior in Japan," ISER Discussion Paper, Institute of Social and Economic Research, Osaka University 0640, Institute of Social and Economic Research, Osaka University.

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