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Household debt, consumption and inequality

Berrak Bahadir, Kuhelika De and William Lastrapes ()

Journal of International Money and Finance, 2020, vol. 109, issue C

Abstract: This paper examines the link between household credit shocks, consumption and income inequality at the national level. Empirically, we use country-specific VAR models to estimate the dynamic responses of aggregate consumption to household credit shocks. We then show in cross-country regressions that the consumption response is more sensitive to such shocks in countries with higher levels of inequality, even after controlling for financial development. Theoretically, we construct and simulate a dynamic model based on the effect of inequality on the incidence of credit constraints, to illustrate potential causal mechanisms.

Keywords: Credit constraints; Credit shocks; Income distribution; VAR; Gini coefficient; Local projections (search for similar items in EconPapers)
JEL-codes: E21 E32 E44 E51 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.jimonfin.2020.102240

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