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Consumption and credit constraints: International evidence

  • Bacchetta, Philippe
  • Gerlach, Stefan

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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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 40 (1997)
Issue (Month): 2 (October)
Pages: 207-238

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Handle: RePEc:eee:moneco:v:40:y:1997:i:2:p:207-238
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  19. Rob Alessie & Michael Devereux & Guglielmo Weber, 1993. "Intertemporal consumption, durables and liquidity constraints: a cohort analysis," IFS Working Papers W93/07, Institute for Fiscal Studies.
  20. Mankiw, N. Gregory, 1982. "Hall's consumption hypothesis and durable goods," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 417-425.
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