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Consumption and Credit Constraints : International Evidence

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  • Philippe BACCHETTA
  • Stefan GERLACH

Abstract

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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Bibliographic Info

Paper provided by Université de Lausanne, Faculté des HEC, DEEP in its series Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) with number 9707.

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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

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Postal: Université de Lausanne, Faculté des HEC, DEEP, Internef, CH-1015 Lausanne
Phone: ++41 21 692.33.64
Fax: ++41 21 692.33.05
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Web page: http://www.hec.unil.ch/deep/publications/cahiers/series
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Keywords: consumption; credit; liquidity constraints; Kalman filter;

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References

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  1. Chah, Eun Young & Ramey, Valerie A & Starr, Ross M, 1995. "Liquidity Constraints and Intertemporal Consumer Optimization: Theory and Evidence from Durable Goods," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 272-87, February.
  2. Philippe BACCHETTA & CRamon CAMINAL, 1996. "Do Capital Market Imperfections Exacerbate Output Fluctuations ?," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9612, Université de Lausanne, Faculté des HEC, DEEP.
  3. Kausar Hamdani & Anthony P. Rodrigues & Maria Varvatsoulis, 1994. "Survey evidence on credit tightening and the factors behind the recent credit crunch," Monograph, Federal Reserve Bank of New York, number 1994seoctatfbtrc.
  4. John V. Duca, 1995. "Credit availability, bank consumer lending, and consumer durables," Working Papers 9514, Federal Reserve Bank of Dallas.
  5. Sydney Ludvigson, 1999. "Consumption And Credit: A Model Of Time-Varying Liquidity Constraints," The Review of Economics and Statistics, MIT Press, vol. 81(3), pages 434-447, August.
  6. John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income, and Interest Rates: Reinterpreting the Time Series Evidence," NBER Working Papers 2924, National Bureau of Economic Research, Inc.
  7. Lawrance, Emily C, 1995. "Consumer Default and the Life Cycle Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 939-54, November.
  8. Angus Deaton, 1989. "Saving and Liquidity Constraints," NBER Working Papers 3196, National Bureau of Economic Research, Inc.
  9. Alessie, Rob & Devereux, Michael P. & Weber, Guglielmo, 1997. "Intertemporal consumption, durables and liquidity constraints: A cohort analysis," European Economic Review, Elsevier, vol. 41(1), pages 37-59, January.
  10. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," NBER Working Papers 5146, National Bureau of Economic Research, Inc.
  11. Jappelli, Tullio & Pagano, Marco, 1988. "Consumption and Capital Market Imperfection: An International Comparison," CEPR Discussion Papers 244, C.E.P.R. Discussion Papers.
  12. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
  13. Blundell-Wignall, Adrian & Browne, Frank & Tarditi, Alison, 1995. "Financial Liberalization and the Permanent Income Hypothesis," The Manchester School of Economic & Social Studies, University of Manchester, vol. 63(2), pages 125-44, June.
  14. Bayoumi, Tamim A, 1993. "Financial Deregulation and Consumption in the United Kingdom," The Review of Economics and Statistics, MIT Press, vol. 75(3), pages 536-39, August.
  15. Christopher D Carroll & Wendy E Dunn, 1997. "Unemployment Expectations Jumping (Ss) Triggers and Household Balance Sheets," Economics Working Paper Archive 386, The Johns Hopkins University,Department of Economics.
  16. repec:fth:harver:1435 is not listed on IDEAS
  17. Tony S. Wirjanto, 1995. "Aggregate Consumption Behaviour and Liquidity Constraints: The Canadian Evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 28(4b), pages 1135-52, November.
  18. Mankiw, N. Gregory, 1982. "Hall's consumption hypothesis and durable goods," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 417-425.
  19. John Y. Campbell & N. Gregory Mankiw, 1991. "Permanent Income, Current Income, and Consumption," NBER Working Papers 2436, National Bureau of Economic Research, Inc.
  20. Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, number 9780198288244, September.
  21. Jonathan McCarthy, 1997. "Debt, delinquencies, and consumer spending," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 3(Feb).
  22. Antzoulatos, Angelos A, 1994. "Credit Rationing and Rational Behavior," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(2), pages 182-202, May.
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