Loading...

Excess sensitivity and borrowing constraints: Evidence from Iranian households

Einian, M ; Sharif University of Technology | 2020

360 Viewed
  1. Type of Document: Article
  2. DOI: 10.1111/ecot.12233
  3. Publisher: John Wiley and Sons Inc , 2020
  4. Abstract:
  5. In contrast to the findings of simple rational expectations permanent income hypothesis models, empirical studies show that income changes can help predict consumption change. This is dubbed as excess sensitivity in the macroeconomic literature. We use Iranian household data to investigate the excess sensitivity using civil servant status as a proxy for borrowing constraints. We observe that the excess sensitivity is different among different panels. Much less excess sensitivity is observed for government employees who have better access to finance due to the structure of the labour market and banking system in Iran. Our proxy variable to divide data, which is the working status of the head of the household, does not suffer from endogeneity problems evident in the previous literature. The results of this study indicate that the actual consumption profile of a constrained household is suboptimal and hence deepening financial access can decrease the welfare loss of this suboptimality. © 2019 The Authors. Economics of Transition and Institutional Change © 2019 The European Bank for Reconstruction and Development
  6. Keywords:
  7. Borrowing constraints ; Consumption smoothing ; Euler equation ; Excess sensitivity ; Permanent income hypothesis ; Banking ; Consumption behavior ; Empirical analysis ; Equation ; Eulerian analysis ; Finance ; Income distribution ; Labor market ; Macroeconomics ; Numerical model ; Welfare impact ; Iran
  8. Source: Economics of Transition and Institutional Change ; Volume 28, Issue 1 , 2020 , Pages 137-160
  9. URL: https://onlinelibrary.wiley.com/doi/abs/10.1111/ecot.12233