IDEAS home Printed from https://ideas.repec.org/p/bdr/borrec/912.html
   My bibliography  Save this paper

Determinants of consumer credit within a constrained framework: evidence from Colombian microdata

Author

Listed:
  • Luis Eduardo Arango

    (Banco de la República de Colombia)

  • Lina Cardona-Sosa

    (Banco de la República de Colombia)

Abstract

In this paper, we study the determinants of consumer credit using microdata from a Credit Union in Colombia. To the best of our knowledge, this is the first study to use this type of data in Latin America. We present evidence of liquidity constraints and some of the ways these appear; nevertheless, we still find that variables related to the life cycle–permanent income hypothesis are important determinants of the demand for consumer debt. The elasticity of current income is between 0.3 and 0.7, while the semielasticity of the real interest rate is around –1.4. If individuals are homeowners and have some school attainments, they have an increased demand for debt. Similarly, their level of indebtedness drives them to acquire more debts instead of deterring them from borrowing. Once the supply side is considered, we provide evidence that the score assigned to individuals is a significant determinant in deciding which credit is approved by the Credit Union and which is not. At the same time, the indebtedness of individuals and their performance with regards to current debt are determinants of the trimming-down of the amounts requested by customers. Interestingly, when we include these latter variables in the specifications, the interest rate becomes a positive determinant of consumer credit supply.

Suggested Citation

  • Luis Eduardo Arango & Lina Cardona-Sosa, 2015. "Determinants of consumer credit within a constrained framework: evidence from Colombian microdata," Borradores de Economia 912, Banco de la Republica de Colombia.
  • Handle: RePEc:bdr:borrec:912
    DOI: 10.32468/be.912
    as

    Download full text from publisher

    File URL: https://doi.org/10.32468/be.912
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Correa, Arnildo & Marins, Jaqueline & Neves, Myrian & da Silva, Antonio Carlos, 2014. "Credit Default and Business Cycles: An Empirical Investigation of Brazilian Retail Loans," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 68(3), September.
    2. 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 971-987, December.
    3. Leonardo Villar Gómez & David Salamanca Rojas & Andrés Murcia Pabón, 2005. "Crédito, Represión Financiera y Flujos de Capitales en Colombia: 1974-2003," BORRADORES DE ECONOMIA 002236, BANCO DE LA REPÚBLICA.
    4. Giuseppe Bertola & Richard Disney & Charles Grant (ed.), 2006. "The Economics of Consumer Credit," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262026015, February.
    5. Zeldes, Stephen P, 1989. "Consumption and Liquidity Constraints: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 305-346, April.
    6. Viviana Alejandra Alfonso & Luis Eduardo Arango & Fernando Arias & José David Pulido, 2011. "Ciclos de negocios en Colombia: 1980-2010," Borradores de Economia 651, Banco de la Republica de Colombia.
    7. Luz Adriana Flórez & Carlos Esteban Posada & José Fernando Escobar, 2005. "Crédito y depósitos bancarios en Colombia (1990-2004): una relación de largo plazo," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 23(48), pages 12-63, Junio.
    8. Andrés Murcia Pabón, 2007. "Determinantes del acceso al crédito de los hogares colombianos," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República - ESPE, vol. 25(55), pages 40-83, December.
    9. Runkle, David E., 1991. "Liquidity constraints and the permanent-income hypothesis : Evidence from panel data," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 73-98, February.
    10. Luis E. Arango & Lina Cardona-Sosa, 2015. "Consumer credit performance over the business cycle in Colombia: some empirical facts," BORRADORES DE ECONOMIA 012389, BANCO DE LA REPÚBLICA.
    11. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6, National Bureau of Economic Research, Inc.
    12. Rob Alessie & Stefan Hochguertel & Guglielmo Weber, 2005. "Consumer Credit: Evidence From Italian Micro Data," Journal of the European Economic Association, MIT Press, vol. 3(1), pages 144-178, March.
    13. Cox, Donald & Jappelli, Tullio, 1993. "The Effect of Borrowing Constraints on Consumer Liabilities," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 197-213, May.
    14. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    15. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, May.
    16. David B. Gross & Nicholas S. Souleles, 2000. "Consumer Response to Changes in Credit Supply: Evidence from Credit Card Data," Center for Financial Institutions Working Papers 00-04, Wharton School Center for Financial Institutions, University of Pennsylvania.
    17. Dwight M. Jaffee & Thomas Russell, 1976. "Imperfect Information, Uncertainty, and Credit Rationing," The Quarterly Journal of Economics, Oxford University Press, vol. 90(4), pages 651-666.
    18. 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.
    19. Martha Bottia & Lina Cardona-Sosa & Carlos Medina, 2012. "El SISBEN como mecanismo de focalización individual del régimen subsidiado en salud en Colombia: ventajas y limitaciones," Revista de Economía del Rosario, Universidad del Rosario, December.
    20. Charles Grant, 2007. "Estimating credit constraints among US households," Oxford Economic Papers, Oxford University Press, vol. 59(4), pages 583-605, October.
    21. Silvia Magri, 2007. "Italian households’ debt: the participation to the debt market and the size of the loan," Empirical Economics, Springer, vol. 33(3), pages 401-426, November.
    22. Christopher A. Pissarides, 1978. "Liquidity Considerations in the Theory of Consumption," The Quarterly Journal of Economics, Oxford University Press, vol. 92(2), pages 279-296.
    23. Jonathan Crook, 2001. "The demand for household debt in the USA: evidence from the 1995 Survey of Consumer Finance," Applied Financial Economics, Taylor & Francis Journals, vol. 11(1), pages 83-91.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Luis E. Arango & Lina Cardona-Sosa, 2015. "Determinants of consumer credit within a debt constrained framework. Evidence from microdata," BORRADORES DE ECONOMIA 013965, BANCO DE LA REPÚBLICA.
    2. Orazio P. Attanasio, 1998. "Consumption Demand," NBER Working Papers 6466, National Bureau of Economic Research, Inc.
    3. Attanasio, Orazio P., 1995. "The intertemporal allocation of consumption: theory and evidence," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 42(1), pages 39-56, June.
    4. Antonio Cutanda & José M. Labeaga & Juan A. Sanchis-Llopis, 2020. "Aggregation biases in empirical Euler consumption equations: evidence from Spanish data," Empirical Economics, Springer, vol. 58(3), pages 957-977, March.
    5. Barbara Cavalletti & Corrado Lagazio & Elena Lagomarsino & Daniela Vandone, 2020. "Consumer Debt and Financial Fragility: Evidence from Italy," Journal of Consumer Policy, Springer, vol. 43(4), pages 747-765, December.
    6. Huaming Wang, 2020. "Does Household Mortgage Really Restrain Consumption? an Analysis Based on the Data of China Family Panel Studies in 2018," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 10(6), pages 1-1.
    7. Barbara Cavalletti & Corrado Lagazio & Daniela Vandone & Elena Lagomarsino, 2012. "The role of financial position on consumer indebted-ness. An empirical analysis in Italy," DEP - series of economic working papers 8/2012, University of Genoa, Research Doctorate in Public Economics.
    8. Laura Serlenga, 2002. "Three Alternative Approaches to Test the Permanent Income Hypothesis in Dynamic Panels," SERIES 0005, Dipartimento di Economia e Finanza - Università degli Studi di Bari "Aldo Moro", revised Feb 2002.
    9. Marjorie A. Flavin, 1991. "The Joint Consumption/Asset Demand Decision: A Case Study in Robust Estimation," NBER Working Papers 3802, National Bureau of Economic Research, Inc.
    10. Stefano Cosma & Francesco Pattarin, 2012. "Attitudes, personality factors and household debt decisions: A study of consumer credit," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 0031, Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi".
    11. Chul‐Woo Kwon & Peter F. Orazem & Daniel M. Otto, 2006. "Off‐farm labor supply responses to permanent and transitory farm income," Agricultural Economics, International Association of Agricultural Economists, vol. 34(1), pages 59-67, January.
    12. Luigi Giamboni & Emanuele Millemaci & Robert J. Waldmann, 2013. "Evaluating how predictable errors in expected income affect consumption," Applied Economics, Taylor & Francis Journals, vol. 45(28), pages 4004-4021, October.
    13. Barbara CAVALLETTI & Corrado LAGAZIO & Daniela VANDONE, 2008. "Il credito al consumo in Italia: benessere economico o fragilita’ finanziaria?," Departmental Working Papers 2008-24, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    14. Alessandro Federici & Pierluigi Montalbano, 2012. "Macroeconomic volatility, consumption behaviour and welfare: A cross-country analysis," Working Paper Series 3612, Department of Economics, University of Sussex Business School.
    15. Andrea Repetto, 2001. "Incentivos al ahorro personal: Lecciones de la economía del comportamiento," Central Banking, Analysis, and Economic Policies Book Series, in: Felipe Morandé & Rodrigo Vergara & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Edit (ed.),Análisis Empírico del Ahorro en Chile, edition 1, volume 1, chapter 7, pages 191-240, Central Bank of Chile.
    16. van de Ven, Justin, 2011. "A structural dynamic microsimulation model of household savings and labour supply," Economic Modelling, Elsevier, vol. 28(4), pages 2054-2070, July.
    17. Ogawa, Kazuo & Kitasaka, Shin-ichi & Yamaoka, Hiroshi & Iwata, Yasuharu, 1996. "An empirical re-evaluation of wealth effect in Japanese household behavior," Japan and the World Economy, Elsevier, vol. 8(4), pages 423-442, December.
    18. Tomas Havranek & Anna Sokolova, 2016. "Do Consumers Really Follow a Rule of Thumb? Three Thousand Estimates from 130 Studies Say "Probably Not"," Working Papers 2016/08, Czech National Bank.
    19. Irina Khvostova Author-Email: ikhvostova@hse.ru & Anna Novak Author-Email: aenovak@hse.ru, 2016. "The Euler Equation with Habits and Measurement Errors: Estimates on Russian Micro Data," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 63(4), pages 395-409, September.
    20. Jose Luengo-Prado, Maria, 2006. "Durables, nondurables, down payments and consumption excesses," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1509-1539, October.

    More about this item

    Keywords

    consumer credit; credit constraints; score; indebtedness; life cycle-permanent income hypothesis;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bdr:borrec:912. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/brcgvco.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Clorith Angélica Bahos Olivera (email available below). General contact details of provider: https://edirc.repec.org/data/brcgvco.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.