Consumption and credit constraints during financial crises
Petra Gerlach-Kristen, Rossana Merola, Conor O'Toole, 1 December 2013
Households tend to smooth their consumption and that’s why expenditures do not display a large variability over time. However, the recent financial crisis has been associated with a large decrease in consumption in certain countries. This column presents evidence that a drop in income during a crisis leads to a lower short-run consumption. Furthermore, micro data analysis shows that some households are affected more than others. Thus, policy recommendations can be made only after taking household heterogeneity into account.
In most countries, households’ consumption expenditure accounts for more than half of GDP. How much households spend reflects their living standards, and typically households try to smooth consumption over time. As a result, consumption usually does not display large variability and, therefore, has found comparatively little academic and policy attention.
Topics: Global crisis
Tags: consumption, credit constraints, financial crises
How to get around credit constraints? The role of renting and leasing during financial crises
Peter N. Gal, Gabor Pinter, 21 September 2013
Renting capital goods makes up 20% of total capital expenses by US companies and this type of capital spending increases in downturns. This column discusses research showing that the systematic pattern of corporate leasing can be linked to credit constraints. This means that a robust rental sector has the potential to mitigate the negative effects of financial disruptions when obtaining credit becomes difficult.
How does the ownership of capital affect the aggregate behaviour of the economy? Does it matter whether firms own or rent production capital such as machinery, equipment, offices, and structures?
Topics: Financial markets
Tags: business cycles, credit constraints, financial crises, investment, rental markets
Who gets the credit? And does it matter? Household vs. firm lending across countries
Thorsten Beck, Berrak Buyukkarabacak, Felix Rioja, Neven Valev, 9 July 2009
How does financial development affect macroeconomic outcomes? Previous studies have relied on aggregate measures. This column introduces a data set that distinguishes between lending to enterprises and households and investigates the consequences for economic growth, income inequality, and consumption smoothing.
An extensive literature has documented the positive effect of financial development on economic growth and poverty reduction (Rajan and Zingales 1998; Beck, Levine and Loayza, 200
Topics: Development, Financial markets
Tags: credit constraints, enterprise credit, financial development, household credit, lending