DP244 Consumption and Capital Market Imperfection: An International Comparison

Author(s):	Tullio Jappelli, Marco Pagano
Publication Date:	May 1988
Keyword(s):	Consumer Debt, Consumption, Liquidity Constraints
JEL(s):	122, 315
Programme Areas:	International Macroeconomics, Applied Macroeconomics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=244

We estimate Euler equations for a number of countries and find that the excess sensitivity of consumption to current income fluctuations is higher in the countries where consumers borrow less. The low level of consumer debt in these countries can be interpreted either as a symptom of tighter credit rationing or as the result of a lower demand for loans. The evidence described in this paper suggests that the former interpretation may be more appropriate and thus supports the view that excess sensitivity may be attributed to liquidity constraints, rather than to other factors.