EconPapers    
Economics at your fingertips  
 

Household Debt and Aggregate Consumption Expenditures

Robert Murphy ()

No 386, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: This paper shows that the debt burden of households, as measured by the debt service to income ratio, is helpful in forecasting the future growth of consumer spending. Not only is the debt-service ratio a statistically significant predictor of future spending growth, it also explains about as much of the variation in spending growth as many other commonly used indicators. And when combined with other economic indicators, the debt-service ratio still provides incremental predictive power. The debt-service ratio predicts future spending growth in part because it helps predict future income growth for borrowing-constrained households, but also because it directly affects spending growth. I argue that this direct effect reflects a tightening of lending standards by financial institutions following a rise in the debt burden of households. This direct effect is important for spending on durable goods and services, but virtually nonexistent for spending on nondurable goods. Because almost 70 percent of spending on nondurable goods represents purchases of food and clothing (which are less discretionary than purchases of durables and services), I conclude that my results are consistent with the view that borrowing-constrained households will limit their discretionary purchases when faced with a tightening of credit.

Keywords: Household Debt; Consumer Spending; Debt Service (search for similar items in EconPapers)
JEL-codes: E20 E21 E27 (search for similar items in EconPapers)
Pages: 24 pages
Date: 1997-10-30
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

Published as "Household Debt and Consumer Spending," Business Economics, 1998, 33, 38-42

Downloads: (external link)
http://fmwww.bc.edu/EC-P/wp386.pdf main text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:boc:bocoec:386

Access Statistics for this paper

More papers in Boston College Working Papers in Economics from Boston College Department of Economics Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F Baum ().

 
Page updated 2020-03-29
Handle: RePEc:boc:bocoec:386