Publication:
Job loss, credit constraints, and consumption growth

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Low, Hamish W.

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We use direct evidence on credit constraints to study their importance for household consumption growth and for welfare. We distentangle the direct effect on consumption growth of a currently binding credit constraint from the indirect effect of a potentially binding credit constraint that generates consumption risk. Our data are focused on job losers. We find that less than 5% of job losers experience a binding credit constraint, but those who do experience significant welfare losses, and consumption growth is 24% higher than for the rest of the population. However, even among those who are unconstrained and are able to borrow if needed, consumption responds to transitory income.

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Massachusetts Institute of Technology (MIT) Press

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Economics, Social sciences, Mathematical methods

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Review of Economics and Statistics

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10.1162/REST_a_00417

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