If some consumers are liquidity-constrained, aggregate consumption should be `excessively sensitive' to credit conditions as well as to income. Moreover, the `excess sensitivity' may vary over time. Using data for the United States, Canada, the United Kingdom, Japan and France, we find a substantial impact of credit aggregates on consumption in all countries considered. Moreover, the borrowing/lending wedge is a significant determinant of consumption in the United States, Canada and Japan. Using extended Kalman filtering techniques, we show that the excess sensitivity varies over time, with a clear tendency to decline in the United States.
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Length: 27 pages Date of creation: Aug 1997 Date of revision: Publication status: Published in Journal of Monetary Economics, vol.40, No 2, 1997, pp. 207-238 Handle: RePEc:lau:crdeep:9707
Find related papers by JEL classification: D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
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