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Credit Constraints and Consumer Spending

Author

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  • Kimberly Beaton

Abstract

This paper examines the relationship between aggregate consumer spending and credit availability in the United States. The author finds that consumer spending falls (rises) in response to a reduction (increase) in credit availability. Moreover, she provides a formal assessment of the possibility that credit availability is particularly important for consumer spending when it undergoes large changes. In this respect, she estimates a consumption function in which only large expansions and contractions in credit affect spending. She concludes that large changes in credit availability are particularly important for consumers' spending decisions. As should be expected, these periods tend to be associated with periods of high economic uncertainty. These results show that credit availability should be taken into account when modeling and forecasting consumer spending.

Suggested Citation

  • Kimberly Beaton, 2009. "Credit Constraints and Consumer Spending," Staff Working Papers 09-25, Bank of Canada.
  • Handle: RePEc:bca:bocawp:09-25
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    File URL: http://www.bankofcanada.ca/wp-content/uploads/2010/02/wp09-25.pdf
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    Cited by:

    1. Donal Smith, 2015. "Collateral Constraints and the Interest Rate," Discussion Papers 15/22, Department of Economics, University of York.
    2. Vlatka Bilas & Mile Bošnjak, 2015. "Examining the relationship between banking loans to private individuals growth rate and personal consumption growth rate in Croatia – the cointegration approach," Notitia - journal for sustainable development, Notita Ltd., vol. 1(1), pages 19-25, December.

    More about this item

    Keywords

    Credit and credit aggregates; Domestic demand and components; Recent economic and financial developments;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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