IDEAS home Printed from https://ideas.repec.org/a/wly/ectrin/v28y2020i1p137-160.html
   My bibliography  Save this article

Excess sensitivity and borrowing constraints: Evidence from Iranian households

Author

Listed:
  • Majid Einian
  • Masoud Nili

Abstract

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.

Suggested Citation

  • Majid Einian & Masoud Nili, 2020. "Excess sensitivity and borrowing constraints: Evidence from Iranian households," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 28(1), pages 137-160, January.
    • Handle: RePEc:wly:ectrin:v:28:y:2020:i:1:p:137-160
    DOI: 10.1111/ecot.12233
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/ecot.12233
    Download Restriction: no
    File URL: https://libkey.io/10.1111/ecot.12233?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Attanasio, Orazio P & Browning, Martin, 1995. "Consumption over the Life Cycle and over the Business Cycle," American Economic Review, American Economic Association, vol. 85(5), pages 1118-1137, December.
    2. Fabrizio Perri & Dirk Krueger, 2008. "How does Household Consumption Respond to Income Shocks? Evidence and Theory," 2008 Meeting Papers 910, Society for Economic Dynamics.
    3. Grant M Scobie & John K Gibson, 2003. "Household Saving Behaviour in New Zealand: Why do Cohorts Behave Differently?," Treasury Working Paper Series 03/32, New Zealand Treasury.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Terézia Vančová & Luboš Střelec, 2020. "Consumption Function in the Context of Cultural Affinity Zones," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 68(4), pages 797-806.
    2. Chen Taiming & Qi Yingfei & Du Liangsheng, 2024. "Transportation Network Density, Domestic Market Integration and Excess Sensitivity of Household Consumption," China Finance and Economic Review, De Gruyter, vol. 13(3), pages 24-43.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Athanasopoulos, George & de Carvalho Guillén, Osmani Teixeira & Issler, João Victor & Vahid, Farshid, 2011. "Model selection, estimation and forecasting in VAR models with short-run and long-run restrictions," Journal of Econometrics, Elsevier, vol. 164(1), pages 116-129, September.
    2. Thomas F. Crossley & Hamish W. Low, 2011. "Is The Elasticity Of Intertemporal Substitution Constant?," Journal of the European Economic Association, European Economic Association, vol. 9(1), pages 87-105, February.
    3. Tatiane Menezes & R. Silveira-Neto & Carlos Azzoni, 2012. "Demography and evolution of regional inequality," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 49(3), pages 643-655, December.
    4. Aydilek, Asiye, 2016. "The allocation of time and puzzling profiles of the elderly," Economic Modelling, Elsevier, vol. 53(C), pages 515-526.
    5. Klos, Alexander & Rottke, Simon, 2013. "Saving and Consumption When Children Move Out," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79786, Verein für Socialpolitik / German Economic Association.
    6. Dräger, Lena & Lamla, Michael J. & Pfajfar, Damjan, 2020. "The Hidden Heterogeneity of Inflation and Interest Rate Expectations: The Role of Preferences," Hannover Economic Papers (HEP) dp-666, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät, revised Feb 2023.
    7. Carmen Camacho & Agustín Pérez-Barahona, 2017. "The diffusion of economic activity across space: a new approach," Working Papers halshs-01670532, HAL.
    8. Young Jun Chun & Jeong Hwan Lee & Deokwoo Nam, 2025. "Estimating the Income Elasticity of Marginal Utility: A Study Using South Korean Household Survey Data," Korean Economic Review, Korean Economic Association, vol. 41, pages 87-110.
    9. Yacine Ait-Sahalia & Jonathan A. Parker & Motohiro Yogo, 2001. "Luxury Goods and the Equity Premium," NBER Working Papers 8417, National Bureau of Economic Research, Inc.
    10. Jonathan Heathcote, 2003. "On the Distributional Effects of Reducing Capital Taxes (previously: Factor Taxation with Heterogeneous Agents)," Working Papers gueconwpa~03-03-22, Georgetown University, Department of Economics.
    11. Elmendorf, Douglas W. & Gregory Mankiw, N., 1999. "Government debt," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 25, pages 1615-1669, Elsevier.
    12. Sule Alan & Orazio Attanasio & Martin Browning, 2009. "Estimating Euler equations with noisy data: two exact GMM estimators," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(2), pages 309-324, March.
    13. William M. Gentry & R. Glenn Hubbard, 2000. "Entrepreneurship and Household Saving," NBER Working Papers 7894, National Bureau of Economic Research, Inc.
    14. Masakatsu Okubo, 2011. "The Intertemporal Elasticity of Substitution: An Analysis Based on Japanese Data," Economica, London School of Economics and Political Science, vol. 78(310), pages 367-390, April.
    15. Jonathan Temple & Huikang Ying & Patrick Carter, 2014. "Transfers and Transformations: Remittances, Foreign Aid, and Growth," Bristol Economics Discussion Papers 14/649, School of Economics, University of Bristol, UK, revised 02 Dec 2014.
    16. Gale, William & Pence, Karen, 2006. "Are Successive Generations Getting Wealthier, and If So, Why?Evidence from the 1990s," MPRA Paper 55502, University Library of Munich, Germany.
    17. Stéfan Lollivier, 1999. "La consommation sensible aux variations de revenu, même sur le court terme," Économie et Statistique, Programme National Persée, vol. 324(1), pages 181-193.
    18. Garcia, Rene & Lusardi, Annamaria & Ng, Serena, 1997. "Excess Sensitivity and Asymmetries in Consumption: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(2), pages 154-176, May.
    19. James J. Heckman & Stefano Mosso, 2014. "The Economics of Human Development and Social Mobility," Annual Review of Economics, Annual Reviews, vol. 6(1), pages 689-733, August.
    20. Marek Weretka & Daniel Quint, 2022. "Slope-takers in anonymous markets," GRAPE Working Papers 64, GRAPE Group for Research in Applied Economics.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:ectrin:v:28:y:2020:i:1:p:137-160. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1111/(ISSN)2577-6983 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.