Title Credit constraints, productivity shocks and consumption volatility in emerging economies / Rudrani Bhattacharya and Ila Patnaiky

Published [Washington, D.C.] : International Monetary Fund, ©2013

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Description 1 online resource (33 pages) Series IMF working paper ; WP/13/120 IMF working paper ; WP/13/120 Contents Cover; Contents; Introduction; Consumption volatility and Financial development; Table 1 Relative consumption volatility: Selected emerging economies; Tables; Table 2 Access to finance; Credit constraints and consumption volatility: Theoretical framework; Figures; Figure 1 Financial development; 3.1 The model; 3.2 Predictions; Case study; 4.1 Evidence for India; Figure 2 Financial development in India; Table 3 Business cycle stylised facts for the Indian economy in the pre and post reform period; Figure 3 Trend in relative consumption volatility; 4.2 Calibration 4.2.1 Shock process in the total factor productivity seriesTable 4 Benchmark parameter values; Table 5 Sectoral shares of factors of production; 4.2.2 Shock process in the growth of labour productivity; 4.3 Effect of Financial development on relative consumption volatility; Table 6 Business cycle volatilities from the simulated model; Table 7 Business cycle correlation and persistence from the simulated model; Figure 4 Actual and simulated cycles; 4.4 Sensitivity to the measure of financial development; Table 8 Sensitivity analysis with respect to the nancial development parameter Table 9 Sensitivity analysis with respect to the nancial development parameterConclusion; Appendixes; Appendix I; Table 10 Data span for gdp and consumption expenditure: Emerging economies; Appendix II; B.1 Solution of the log-linearised system of equations using method of Undetermined coefficients; B.2 Proof of Proposition 1.(i); B.3 Proof of Proposition 1.(ii); Table 11 Relative consumption volatility under transitory income shock; B.4 Proof of Proposition 1.(iii); Table 12 Relative consumption volatility under permanent income shock; B.5 Proof of Proposition 1.(iv) Summary "How does access to credit impact consumption volatility? Theory and evidence from advanced economies suggests that greater household access to finance smooths consumption. Evidence from emerging markets, where consumption is usually more volatile than income, indicates that financial reform further increases the volatility of consumption relative to output. We address this puzzle in the framework of an emerging economy model in which households face shocks to trend growth rate, and a fraction of them are credit constrained. Unconstrained households can respond to shocks to trend growth by raising current consumption more than rise in current income. Financial reform increases the share of such households, leading to greater relative consumption volatility. Calibration of the model for pre and post financial reform in India provides support for the model's key predictions"--Abstract Notes Title from PDF title page (IMF Web site, viewed July 1, 2013) "Research Department." "May 2013." Bibliography Includes bibliographical references (pages 31-32) Subject Credit -- Developing countries -- Econometric models Consumption (Economics) -- Developing countries -- Econometric models Finance -- Developing countries -- Econometric models Consumption (Economics) -- Econometric models Credit -- Econometric models Finance -- Econometric models Developing countries Form Electronic book Author Patnaiky, Ila, author International Monetary Fund. Research Department, issuing body ISBN 9781484319161 1484319168 9781484325988 1484325982 1484365682 9781484365687

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