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Consumption Smoothing and Borrowing Constraints: Evidence from Household Surveys of Iran

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  • Einian, Majid
  • Nili, Masoud

Abstract

We use Iranian Household Expenditure and Income Survey," to analyze the dynamics of consumption of the households. We observe evidence of excess sensitivity in a cohort pseudo panel of Iranian households. Excess sensitivity, however, is absent for government employees who have better access to finance due to the structure of labor market and banking system in Iran. Our results support the idea that borrowing constraints is the main cause for evidence of excess sensitivity. This indicates that actual consumption prole is sub-optimal and hence deepening financial access will decrease the welfare loss of this sub-optimality. In the paper, we have also provided estimates of elasticity of inter-temporal substitution for the Iranian households for the first time, and they are consistent with those of other developing countries.

Suggested Citation

  • Einian, Majid & Nili, Masoud, 2016. "Consumption Smoothing and Borrowing Constraints: Evidence from Household Surveys of Iran," MPRA Paper 72461, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:72461
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    References listed on IDEAS

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    Cited by:

    1. Salehi-Isfahani, Djavad & Mostafavi-Dehzooei, Mohammad H., 2018. "Cash transfers and labor supply: Evidence from a large-scale program in Iran," Journal of Development Economics, Elsevier, vol. 135(C), pages 349-367.
    2. Einian, Majid & Nili, Masoud, 2016. "Elasticity of Intertemporal Substitution: An Investigation in Iran," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 11(2), pages 207-223, April.

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    More about this item

    Keywords

    Consumption Smoothing; Permanent Income Hypothesis; Euler Equation; Excess Sensitivity; Borrowing Constraints;
    All these keywords.

    JEL classification:

    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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