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Long-run credit growth in the US

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  • Durkin, Thomas A.
  • Ord, Keith
  • Walker, David A.

Abstract

The paper explores the long-term income elasticity of consumer and mortgage credit growth since World War II. It also examines other economic factors, to determine whether recent credit use is anomalous. Two-stage least squares show consumer credit income elasticity to be slightly below 1.0, taking other factors into account. A vector autoregressive error correction (VAREC) model for cointegrated variables with unit roots determine short-run and long-run credit impact multipliers which are consistent with the elasticities. Except for 1974-1979, the long-run consumer credit impact multiplier of 0.23 is very close to the debt-income limit that Enthoven projected as long ago as 1957. These results are very different from the simplistic media perspectives.

Suggested Citation

  • Durkin, Thomas A. & Ord, Keith & Walker, David A., 2010. "Long-run credit growth in the US," Journal of Economics and Business, Elsevier, vol. 62(5), pages 383-400, September.
    • Handle: RePEc:eee:jebusi:v:62:y::i:5:p:383-400
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    References listed on IDEAS

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    1. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    2. David B. Gross & Nicholas S. Souleles, 2002. "Do Liquidity Constraints and Interest Rates Matter for Consumer Behavior? Evidence from Credit Card Data," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 149-185.
    3. Kathleen W. Johnson, 2005. "Recent developments in the credit card market and the financial obligations ratio," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), vol. 91(Aut), pages 473-486.
    4. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
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    Keywords

    Consumer credit;

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