How does the sensitivity of consumption to income vary over time? international evidence

Ergys Islamaj and Ayhan Kose

No 7659, Policy Research Working Paper Series from The World Bank

Abstract: This paper studies how the sensitivity of consumption to income has changed over time as the degree of financial integration has risen. In standard theory, greater financial integration facilitates international borrowing and lending, helping to reduce the sensitivity of consumption growth to fluctuations in income. The paper examines the empirical validity of this prediction using an array of indicators of financial integration for a large sample of advanced and developing countries over the period 1960-2011. Two main results are reported. First, the sensitivity of consumption to income has declined over time as the degree of financial integration has risen. The decline has been more pronounced in advanced economies than in developing ones. Second, the regression analysis indicates that a higher degree of financial integration is associated with a lower sensitivity of consumption to income. This finding is robust to the use of a wide range of empirical specifications, country-specific characteristics, and other controls, such as interest rates and outcome-based measures of financial integration. The paper also discusses other potential sources of the temporal changes in the sensitivity of consumption to income.

Keywords: Consumption; Debt Markets; Inequality; Economic Theory&Research; Emerging Markets (search for similar items in EconPapers)
Date: 2016-04-29
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://documents.worldbank.org/curated/en/309571468001185712/pdf/WPS7659.pdf (application/pdf)

Related works:
Journal Article: How does the sensitivity of consumption to income vary over time? International evidence (2016)
Working Paper: How Does the Sensitivity of Consumption to Income Vary Over Time? International Evidence (2016)
Working Paper: How does the sensitivity of consumption to income vary over time? International evidence (2016)
Working Paper: How Does the Sensitivity of Consumption to Income Vary Over Time? International Evidence (2016)
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:wbk:wbrwps:7659

Access Statistics for this paper

More papers in Policy Research Working Paper Series from The World Bank 1818 H Street, N.W., Washington, DC 20433. Contact information at EDIRC.
Bibliographic data for series maintained by Roula I. Yazigi ().