Testing the presence of borrowing constraints from consumption responses to housing deposit changes

Daehwan Kim and Jeffrey Nilsen

Journal of Asian Economics, 2021, vol. 74, issue C

Abstract: The literature on consumption recognizes the challenge of identifying the presence of borrowing constraints at the household level. In this study, we utilize a unique Korean housing contract, a chonsei contract, to characterize the consumption response to housing deposit changes when households are not limited by borrowing constraints. More specifically, we derive a lower bound for consumption changes, the violation of which indicates the presence of binding borrowing constraints. Applying the result to Korean household data, we identify a group of borrowing-constrained households and confirm the association between borrowing constraints and the excess sensitivity of consumption.

Keywords: Borrowing constraints; Consumption response to housing deposit changes; Chonsei; Excess sensitivity; Household data (search for similar items in EconPapers)
JEL-codes: D12 E21 R21 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:asieco:v:74:y:2021:i:c:s1049007821000300

DOI: 10.1016/j.asieco.2021.101301

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