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Income Redistribution, Consumer Credit, and Keeping Up with the Riches
Author(s) -
KLEIN MATHIAS,
KRAUSE CHRISTOPHER
Publication year - 2020
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12690
Subject(s) - dynamic stochastic general equilibrium , economics , consumption (sociology) , redistribution (election) , externality , business cycle , consumer spending , microeconomics , monetary economics , recession , monetary policy , macroeconomics , social science , sociology , politics , political science , law
In this study, we set up a dynamic stochastic general equilibrium (DSGE) model with upward looking consumption comparison and show that consumption externalities are an important driver of consumer credit dynamics. Our model economy is populated by two different household types. Investors, who hold the economy's capital stock, own the firms and supply credit, and workers, who supply labor and demand credit to finance consumption. Furthermore, workers condition their consumption choice on the investors' level of consumption. We estimate the model and find a significant keeping up mechanism by matching business cycle statistics. In reproducing credit moments, our proposed model significantly outperforms a model version in which we abstract from consumption externalities.