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Testing the presence of borrowing constraints from consumption responses to housing deposit changes

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  • Kim, Daehwan
  • Nilsen, Jeffrey

Abstract

The literature on consumption recognizes the challenge of identifying the presence of borrowing constraints at the household level. In this study, we utilize a unique Korean housing contract, a chonsei contract, to characterize the consumption response to housing deposit changes when households are not limited by borrowing constraints. More specifically, we derive a lower bound for consumption changes, the violation of which indicates the presence of binding borrowing constraints. Applying the result to Korean household data, we identify a group of borrowing-constrained households and confirm the association between borrowing constraints and the excess sensitivity of consumption.

Suggested Citation

  • Kim, Daehwan & Nilsen, Jeffrey, 2021. "Testing the presence of borrowing constraints from consumption responses to housing deposit changes," Journal of Asian Economics, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:asieco:v:74:y:2021:i:c:s1049007821000300
    DOI: 10.1016/j.asieco.2021.101301
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    More about this item

    Keywords

    Borrowing constraints; Consumption response to housing deposit changes; Chonsei; Excess sensitivity; Household data;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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