Credit Rationing and the Permanent Income Hypothesis

Authors

  • Vicente Madrigal Stern School of Business. New York University image/svg+xml
  • Tommy Tan Morgan Stanley, Singapore
  • Daniel Vicent Kellog School of Business. Northwestern University
  • Sergio Ribeiro da Costa Werlang Fundação Getulio Vargas image/svg+xml

Keywords:

credit rationing, permanent income hypothesis, aggregate consumption, marginal propensity to consume, intertemporal substitution, credit constraints

Abstract

We model endogenous credit rationing and its effects on aggregate consumption behavior. We explain two important empirical paradoxes of the consumption literature. First, it is possible that some configurations of income/consumption streams be such that an outside observer could estimate a marginal propensity to consume greater than one. Second, if one tried to estimate an intertemporal substitution model disregarding credit constraints, it might result in a nonconcave utility function, even when consumers' utility functions are concave.

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References

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Published

1993-10-31

How to Cite

Madrigal, V., Tan, T., Vicent, D., & Ribeiro da Costa Werlang, S. (1993). Credit Rationing and the Permanent Income Hypothesis. Economic Analysis Review, 8(2), 19–29. Retrieved from https://www.rae-ear.org/index.php/rae/article/view/208

Issue

Vol. 8 No. 2 (1993)

Section

Articles

License

Copyright (c) 1993 Vicente Madrigal, Tommy Tan, Daniel Vicent, Sergio Ribeiro da Costa Werlang

Creative Commons License

This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

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