Working Paper: CEPR ID: DP244
Authors: Tullio Jappelli; Marco Pagano
Abstract: We estimate Euler equations for a number of countries and find that the excess sensitivity of consumption to current income fluctuations is higher in the countries where consumers borrow less. The low level of consumer debt in these countries can be interpreted either as a symptom of tighter credit rationing or as the result of a lower demand for loans. The evidence described in this paper suggests that the former interpretation may be more appropriate and thus supports the view that excess sensitivity may be attributed to liquidity constraints, rather than to other factors.
Keywords: consumption; liquidity constraints; consumer debt
JEL Codes: 122; 315
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| liquidity constraints (E41) | greater excess sensitivity of consumption (D11) |
| higher downpayment requirements (G21) | greater excess sensitivity of consumption (D11) |
| low levels of consumer debt (G51) | tighter credit rationing (E51) |
| response of consumption to transitory taxes and transfers (H31) | greater than predicted by the LCPIH (C59) |
| lower consumer debt levels (G51) | increased sensitivity of consumption to current income fluctuations (D12) |