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Household borrowing and consumption in Spain

Carmen Martínez-Carrascal () and Ana Del Rio ()
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Carmen Martínez-Carrascal: Banco de España

Authors registered in the RePEc Author Service: Carmen Martinez Carrascal

No 421, Working Papers from Banco de España, Working Papers Homepage

Abstract: This paper aims at analysing the impact of household borrowing on consumption. These variables are modelled jointly in a Vector Error Correction Model (VECM) where labour income, wealth variables and nominal interest rates are also included. The main estimation result is that deviations of borrowing from its long-run trend have a significant impact on consumption: when lending is above (below) its long-run level, future consumption contracts (expands). This evidence is also, found in a simpler model in which consumption is not modelled explicitly. In addition, when consumption departs from its long-run level, it seems to be an indicator of changes in future labour income.

Keywords: household debt; consumption; error correction (search for similar items in EconPapers)
JEL-codes: E20 E21 E51 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2004-12
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