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Borrowing Constraints and Credit Demand

  • Jaime Ruiz-Tagle
  • Francis Vella

This paper investigates the determinants of credit demand in the presence of borrowing constraints for the Chilean economy using a recently collected detailed and innovative data set, the Households Financial Survey. The estimation procedure employed allows for the observed debt to be a function of multiple selection rules and incorporates the endogeneity of income and assets into the debt equation. The paper provides compelling evidence that the relationship between household income and debt, both secured and non secured, is highly non linear. This result has clear implications for the level of household debt in the face of financial deregulation.

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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 578.

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Date of creation: May 2010
Date of revision:
Handle: RePEc:chb:bcchwp:578
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  1. 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.
  2. Jappelli Tullio & Pagano Marco & Di Maggio Marco, 2013. "Households' indebtedness and financial fragility," Journal of Financial Management, Markets and Institutions, Società editrice il Mulino, issue 1, pages 23-46, January.
  3. 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.
  4. David B. Gross & Nicholas S. Souleles, 2001. "Do Liquidity Constraints and Interest Rates Matter for Consumer Behavior? Evidence from Credit Card Data," NBER Working Papers 8314, National Bureau of Economic Research, Inc.
  5. Mitali Das & Whitney K. Newey & Francis Vella, 2003. "Nonparametric Estimation of Sample Selection Models," Review of Economic Studies, Wiley Blackwell, vol. 70(1), pages 33-58, January.
  6. Paulo Cox & Eric Parrado & Jaime Ruiz-Tagle, 2006. "Distribution of Assets, Debt, and Income of Chilean Households," Working Papers Central Bank of Chile 388, Central Bank of Chile.
  7. Charles Grant, 2007. "Estimating credit constraints among US households," Oxford Economic Papers, Oxford University Press, vol. 59(4), pages 583-605, October.
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