Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/93272
Authors: 
Coibion, Olivier
Gorodnichenko, Yuriy
Kudlyak, Marianna
Mondragon, John
Year of Publication: 
2014
Series/Report no.: 
IZA Discussion Paper 7910
Abstract: 
One suggested hypothesis for the dramatic rise in household borrowing that preceded the financial crisis is that low-income households increased their demand for credit to finance higher consumption expenditures in order to keep up with higherincome households. Using household level data on debt accumulation during 2001-2012, we show that low-income households in high-inequality regions accumulated less debt relative to income than their counterparts in lower-inequality regions, which negates the hypothesis. We argue instead that these patterns are consistent with supply-side interpretations of debt accumulation patterns during the 2000s. We present a model in which banks use applicants' incomes, combined with local income inequality, to infer the underlying type of the applicant, so that banks ultimately channel more credit toward lower-income applicants in low-inequality regions than high-inequality regions. We confirm the predictions of the model using data on individual mortgage applications in high- and low-inequality regions over this time period.
Subjects: 
inequality
household debt
Great Recession
JEL: 
E21
E51
D14
G21
Document Type: 
Working Paper

Files in This Item:
File
Size
947.41 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.