Consumption and Credit Constraints: A Model and Evidence for Ireland
Petra Gerlach-Kristen () and
No WP471, Papers from Economic and Social Research Institute (ESRI)
Since the onset of the financial crisis, consumption has fallen in many economies. This paper presents a small-scale DSGE model with occasionally binding credit constraints. Indebted households start facing credit constraints when the value of their main asset, which we assume to be housing, declines. As a response, they stop smoothing consumption and deleverage. We show that even households that only expect to face a credit constraint in the future deleverage. In an Irish dataset collected during the crisis, we reject the permanent income hypothesis for highly leveraged households and thus find evidence for a disruption in consumption smoothing. This effect suggests the presence of credit constraints.
Keywords: DSGE/Ireland/housing; collateral/Occasionally; binding; credit; constraint (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5) Track citations by RSS feed
Downloads: (external link)
Journal Article: Consumption and credit constraints: a model and evidence from Ireland (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:esr:wpaper:wp471
Access Statistics for this paper
More papers in Papers from Economic and Social Research Institute (ESRI) Contact information at EDIRC.
Bibliographic data for series maintained by Sarah Burns ().