The Consumption Response to Predictable Changes in Discretionary Income: Evidence from the Repayment of Vehicle Loans / Melvin Stephens Jr..

Format:

Book

Author/Creator:

Stephens, Melvin, Jr.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w9976.

NBER working paper series no. w9976

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

The Consumption Response to Predictable Changes in Discretionary Income

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2003.

Summary:

Whether households smooth' consumption in response to predictable changes in income is an open and contentious question. This paper examines the consumption reaction to predictable increases in discretionary income following the final payment of a vehicle loan. Using data from the Consumer Expenditure Survey, the results show that a 10 percent increase in discretionary income due to a loan repayment leads to a 2 to 3.5 percent increase in non-durable consumption. Additional analysis suggests that these findings may be explained by the presence of borrowing constraints.

Notes:

Print version record

September 2003.