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Financial Reforms and Consumption Smoothing

Boileau Martin () and Zheng Tianxiao ()
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Boileau Martin: University of Colorado, 256 UCB, Boulder, CO 80309, USA
Zheng Tianxiao: International Monetary Fund, 700 19th St NW, Washington, DC 20431, USA

The B.E. Journal of Macroeconomics, 2022, vol. 22, issue 2, 575-611

Abstract: We study how financial reforms affect the extent of consumption smoothing in a dynamic stochastic general equilibrium model of an emerging economy. Consistent with the empirical literature and reform efforts in South Korea and South Africa, we emphasize the relation between consumer credit and durable purchases, and model reforms as the relaxation of the collateral constraint on lower income households. We find that the relaxation of the collateral constraint accounts for a substantial share of the decline in consumption smoothing experienced in South Korea and South Africa.

Keywords: home production; collateral constraint; durable; and consumption volatility; E21; E26; F41; F44 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1515/bejm-2020-0148

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