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Follow the Money: Methods for Identifying Consumption and Investment Responses to a Liquidity Shock

  • Dean Karlan

    ()

    (Economic Growth Center, Yale University)

  • Adam Osman

    ()

    (Department of Economics, Yale University)

  • Jonathan Zinman

    ()

    (Dartmouth College)

Identifying the impacts of liquidity shocks on spending decisions is difficult methodologically but important for theory, practice, and policy. Using seven different methods on microenterprise loan applicants, we find striking results. Borrowers report uses of loan proceeds strategically, and more generally their reporting depends on elicitation method. Borrowers also interpret loan use questions differently than the key counterfactual: spending that would not have occurred sans loan. We identify the counterfactual using random assignment of loan approvals and short-run follow-up elicitation of major household and business cash outflows, and estimate that about 100% of loan-financed spending is on business inventory.

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File URL: http://www.econ.yale.edu/growth_pdf/cdp1034.pdf
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Paper provided by Economic Growth Center, Yale University in its series Working Papers with number 1034.

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Length: 24 pages
Date of creation: Nov 2013
Date of revision:
Handle: RePEc:egc:wpaper:1034
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  1. Michal Bauer & Julie Chytilov√° & Jonathan Morduch, 2008. "Behavioral Foundations of Microcredit: Experimental and Survey Evidence From Rural India," Working Papers IES 2008/28, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Nov 2008.
  2. de Mel, Suresh & McKenzie, David & Woodruff, Christopher, 2007. "Returns to Capital in Microenterprises: Evidence from a Field Experiment," IZA Discussion Papers 2934, Institute for the Study of Labor (IZA).
  3. Blattman, Christopher & Fiala, Nathan & Martinez, Sebastian, 2011. "Employment generation in rural Africa : mid-term results from an experimental evaluation of the Youth Opportunities Program in Northern Uganda," Social Protection and Labor Policy and Technical Notes 66523, The World Bank.
  4. Fafchamps, Marcel & McKenzie, David & Quinn, Simon & Woodruff, Christopher, 2014. "Microenterprise growth and the flypaper effect: Evidence from a randomized experiment in Ghana," Journal of Development Economics, Elsevier, vol. 106(C), pages 211-226.
  5. Esther Duflo & Abhijit Banerjee & Rachel Glennerster & Cynthia G. Kinnan, 2013. "The Miracle of Microfinance? Evidence from a Randomized Evaluation," NBER Working Papers 18950, National Bureau of Economic Research, Inc.
  6. Manuela Angelucci & Dean Karlan & Jonathan Zinman, 2013. "Win Some Lose Some? Evidence from a Randomized Microcredit Program Placement Experiment by Compartamos Banco," NBER Working Papers 19119, National Bureau of Economic Research, Inc.
  7. Gauti B. Eggertsson & Paul Krugman, 2012. "Debt, Deleveraging, and the Liquidity Trap: A Fisher-Minsky-Koo Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 127(3), pages 1469-1513.
  8. Orazio Attanasio & Britta Augsburg & Ralph De Haas & Emla Fitzsimons & Heike Harmgart, 2011. "Group lending or individual lending? Evidence from a randomised field experiment in Mongolia," IFS Working Papers W11/20, Institute for Fiscal Studies.
  9. Augsburg, Britta & de Haas, Ralph & Harmgart, Heike & Meghir, Costas, 2014. "Microfinance at the margin: Experimental evidence from Bosnia and Herzegovina," Discussion Papers, Research Unit: Economics of Change SP II 2014-304, Social Science Research Center Berlin (WZB).
  10. Britta Augsburg & Ralph De Haas & Heike Harmgart & Costas Meghir, 2012. "Microfinance, Poverty and Education," IFS Working Papers W12/15, Institute for Fiscal Studies.
  11. Manuela Angelucci, Dean Karlan, Jonathan Zinman, 2013. "Win Some Lose Some? Evidence from a Randomized Microcredit Program Placement Experiment by Compartamos Banco-Working Paper 330," Working Papers 330, Center for Global Development.
  12. Alessandro Tarozzi & Jaikishan Desai & Kristin Johnson, 2013. "On the impact of microcredit: Evidence from a randomized intervention in rural Ethiopia," Economics Working Papers 1407, Department of Economics and Business, Universitat Pompeu Fabra.
  13. Atif R. Mian & Amir Sufi, 2009. "House Prices, Home Equity-Based Borrowing, and the U.S. Household Leverage Crisis," NBER Working Papers 15283, National Bureau of Economic Research, Inc.
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