Consumption Smoothing and Borrowing Constraints: Evidence from Household Surveys of Iran

Einian, Majid and Nili, Masoud (2016): Consumption Smoothing and Borrowing Constraints: Evidence from Household Surveys of Iran.

Abstract

We use Iranian Household Expenditure and Income Survey," to analyze the dynamics of consumption of the households. We observe evidence of excess sensitivity in a cohort pseudo panel of Iranian households. Excess sensitivity, however, is absent for government employees who have better access to finance due to the structure of labor market and banking system in Iran. Our results support the idea that borrowing constraints is the main cause for evidence of excess sensitivity. This indicates that actual consumption prole is sub-optimal and hence deepening financial access will decrease the welfare loss of this sub-optimality. In the paper, we have also provided estimates of elasticity of inter-temporal substitution for the Iranian households for the first time, and they are consistent with those of other developing countries.

• Item Type: MPRA Paper
• Language: English
• Keywords: Consumption Smoothing, Permanent Income Hypothesis, Euler Equation, Excess Sensitivity, Borrowing Constraints
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C55 - Large Data Sets: Modeling and Analysis; D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis; D - Microeconomics > D1 - Household Behavior and Family Economics > D14 - Household Saving; Personal Finance; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O53 - Asia including Middle East

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