Economics at your fingertips  

Leverage, Hand-to-Mouth Households, and MPC Heterogeneity: Evidence from South Korea

Sang-yoon Song ()
Additional contact information
Sang-yoon Song: Economic Research Institute, The Bank of Korea

No 2018-21, Working Papers from Economic Research Institute, Bank of Korea

Abstract: This study examines the link between leverage, Hand-to-Mouth (HtM) status of households, and the marginal propensity to consume (MPC) out of income changes for South Korean households over 2012-2017. To build on previous studies, we provide an alternative definition of HtM households and examine the asymmetric effects of the direction of income changes on MPCs. By using the methodology of Hansen (2000), we estimate the threshold of the liquidity ratio (defined as liquid assets to monthly after-tax income) and find that households with liquid assets less than about two months of after-tax income show higher MPCs than others. We also find that the leverage ratio and newly defined HtM status show asymmetric effects on MPCs by the direction of income changes. The MPC of households with positive income changes is smaller than that of those with negative ones. Furthermore, HtM households with high leverage are much more sensitive to negative income changes than positive ones. This result suggests that in economic circumstances where households are highly in debt and have insufficient liquid assets, as in the South Korea economy, their consumption is likely to be vulnerable to negative income changes and this could hamper aggregate spending growth.

Keywords: Marginal propensity to consume; Leverage; Hand-to-mouth households (search for similar items in EconPapers)
JEL-codes: D12 D14 D90 (search for similar items in EconPapers)
Date: 2018-07-31
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link) Working Paper, 2018 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found

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:

Access Statistics for this paper

More papers in Working Papers from Economic Research Institute, Bank of Korea Contact information at EDIRC.
Bibliographic data for series maintained by Economic Research Institute ().

Page updated 2019-12-08
Handle: RePEc:bok:wpaper:1821