Consumption and Credit Constraints : International Evidence

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Abstract
If some consumers are liquidity-constrained, aggregate consumption should be `excessively sensitive' to credit conditions as well as to income. Moreover, the `excess sensitivity' may vary over time. Using data for the United States, Canada, the United Kingdom, Japan and France, we find a substantial impact of credit aggregates on consumption in all countries considered. Moreover, the borrowing/lending wedge is a significant determinant of consumption in the United States, Canada and Japan. Using extended Kalman filtering techniques, we show that the excess sensitivity varies over time, with a clear tendency to decline in the United States.

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