DP6934 Household External Finance and Consumption

Author(s): Timothy J. Besley, Neil Meads, Paolo Surico
Publication Date: August 2008
Keyword(s): birth cohorts, external finance, household consumption, pseudo panels, terms of access
JEL(s): D10, E21, G21
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=6934

This paper uses mortgage data to construct a measure of terms on which households access to external finance, and relates it to consumption at both the aggregate and cohort levels. The Household External Finance (HEF) index is based on the spread paid by risky borrowers in the mortgage market. There is evidence that the terms of access to external finance matter more for the consumption of young cohorts in U.K. data. Results are robust to a wide variety of specifications.