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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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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11560.

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Date of creation: Aug 2005
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Handle: RePEc:nbr:nberwo:11560

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  1. 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.
  2. Jappelli, Tullio, 1990. "Who Is Credit Constrained in the U.S. Economy?," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 219-34, February.
  3. Midori Wakabayashi & Charles Yuji Horioka, 2005. "Borrowing Constraints and Consumption Behavior in Japan," NBER Working Papers 11560, National Bureau of Economic Research, Inc.
  4. Fumio Hayashi, 1985. "Tests for Liquidity Constraints: A Critical Survey," NBER Working Papers 1720, National Bureau of Economic Research, Inc.
  5. T. Jappelli & J-S Pischke & N.S. Souleles, 1995. "Testing for Liquidity Constraints in Euler Equations with Complementary Data Sources," Working papers 95-19, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Hayashi, Fumio, 1985. "The Effect of Liquidity Constraints on Consumption: A Cross-sectional Analysis," The Quarterly Journal of Economics, MIT Press, vol. 100(1), pages 183-206, February.
  7. Christopher D. Carroll, 1997. "Death to the Log-Linearized Consumption Euler Equation! (And Very Poor Health to the Second-Order Approximation)," NBER Working Papers 6298, National Bureau of Economic Research, Inc.
  8. Nawata, Kazumitsu, 1995. "Estimation of sample-selection models by the maximum likelihood method," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 39(3), pages 299-303.
  9. repec:fth:pennfi:69 is not listed on IDEAS
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Cited by:
  1. Midori Wakabayashi & Charles Yuji Horioka, 2005. "Borrowing Constraints and Consumption Behavior in Japan," NBER Working Papers 11560, National Bureau of Economic Research, Inc.
  2. 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.
  3. 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, vol. 14(3), pages 985-1005, June.
  4. Brady, Ryan R., 2008. "Structural breaks and consumer credit: Is consumption smoothing finally a reality?," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 1246-1268, September.
  5. Ryan R. Brady, 2006. "Credit Cards and Monetary Policy: Are Households still liquidity-constrained?," Departmental Working Papers 12, United States Naval Academy Department of Economics.
  6. Miki Kohara & Charles Yuji Horioka, 2006. "Do Borrowing Constraints Matter? An Analysis of Why the Permanent Income Hypothesis Does Not Apply in Japan," NBER Working Papers 12330, National Bureau of Economic Research, Inc.
  7. Kaiji Chen & Ayşe İmrohoroğlu & Selahattin İmrohoroğlu, 2007. "The Japanese saving rate between 1960 and 2000: productivity, policy changes, and demographics," Economic Theory, Springer, vol. 32(1), pages 87-104, July.
  8. Marion Leturcq, 2011. "Do bankers prefer married couples?," Working Papers halshs-00655584, HAL.

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