How Does the Sensitivity of Consumption to Income Vary Over Time? : International Evidence
This paper studies how the sensitivity of consumption to income has changed over time as the degree of financial integration has risen. In standard theory, greater financial integration facilitates international borrowing and lending, helping to re...
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| Format: | Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2016
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| Online Access: | http://documents.worldbank.org/curated/en/2016/05/26330512/sensitivity-consumption-income-vary-over-time-international-evidence http://hdl.handle.net/10986/24234 |
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okr-10986-242342021-04-23T14:04:20Z How Does the Sensitivity of Consumption to Income Vary Over Time? : International Evidence Islamaj, Ergys Kose, M. Ayhan PER CAPITA CONSUMPTION NATIONAL OUTPUT GROWTH RATES MONETARY POLICY CLOSED ECONOMIES DEPOSITS LAGS INTERNATIONAL CAPITAL MONETARY ECONOMICS DISPOSABLE INCOME INCOME INTEREST RATE OF RETURN INTEREST RATE EXCHANGE STOCK MARKET DISCOUNT RATE ECONOMIC REVIEW LIQUIDITY DEVELOPING COUNTRIES EQUITY MARKET EXPORTS ELASTICITY NEGATIVE LINK POLITICAL ECONOMY DEVELOPING ECONOMIES PORTFOLIO INTERNATIONAL BUSINESS INTERNATIONAL EQUITY OPTIMIZATION CROSS-COUNTRY CORRELATION INCENTIVES POLICY DISCUSSIONS VARIABLES PRICE REAL INCOME FINANCIAL INTEGRATION CONSUMPTION GROWTH PAYMENTS WEALTH SAVING AGGREGATE INCOME EMPIRICAL LITERATURE DEVELOPING COUNTRY EMPIRICAL ANALYSIS DEVELOPMENT ADVANCED COUNTRIES FOREIGN TRADE TOTAL FACTOR PRODUCTIVITY SAVINGS GLOBAL ECONOMY DEVELOPMENT ECONOMICS NEGATIVE IMPACT ADVANCED ECONOMIES EXCHANGE RATES LIQUIDITY CONSTRAINTS PRODUCTIVITY ECONOMETRICS INTEREST RATES INTEREST RATE SHOCKS GLOBALIZATION DEBT MEASUREMENT ERROR FOREIGN ASSETS OPEN ECONOMY BUSINESS CYCLE PRODUCT REAL INTEREST RATE RISK SHARING UTILITY CROSS-COUNTRY INCOME FINANCIAL SYSTEM SERIAL CORRELATION LIBERALIZATION ECONOMIC RESEARCH EQUITY DATA AVAILABILITY CONSUMPTION BOND MARKETS CAPITAL CONTROLS CREDIT CONSTRAINTS CAPITAL MARKET INTEREST VOLATILITY COUNTRY RISK RAPID INCREASE FUTURE DEPENDENT VARIABLE INCOME SHOCKS FOREIGN DIRECT INVESTMENT CREDIT MACROECONOMICS POLITICAL SCIENCE PERMANENT INCOME UTILITY FUNCTION DYNAMIC PANEL AGGREGATE DEMAND REAL RATE ECONOMY POSITIVE CORRELATION AGGREGATE OUTPUT MEASUREMENT SHARES ASSETS REAL EXCHANGE RATE BENCHMARK TRADE LIBERALIZATION HIGH CORRELATION MONETARY POLICIES EQUAL WEIGHTS INTERNATIONAL PORTFOLIO OUTPUT CLOSED ECONOMY REGRESSION ANALYSIS INSURANCE BUSINESS CYCLES PERMANENT INCOME HYPOTHESIS TRADE FUTURE STUDIES GDP THEORY FINANCIAL DEVELOPMENT EQUITY MARKETS INVESTMENT BOND RANDOM WALK SHARE BANKING PRIVATE CONSUMPTION DYNAMIC PANEL FRAMEWORK CAPITAL ACCOUNTS POLICY RESEARCH EXCHANGE RATE RISK AVERSION LIABILITIES OPEN ECONOMIES MACROECONOMIC PERFORMANCE CAPITAL ACCOUNT DEVELOPMENT POLICY FUTURE RESEARCH This paper studies how the sensitivity of consumption to income has changed over time as the degree of financial integration has risen. In standard theory, greater financial integration facilitates international borrowing and lending, helping to reduce the sensitivity of consumption growth to fluctuations in income. The paper examines the empirical validity of this prediction using an array of indicators of financial integration for a large sample of advanced and developing countries over the period 1960-2011. Two main results are reported. First, the sensitivity of consumption to income has declined over time as the degree of financial integration has risen. The decline has been more pronounced in advanced economies than in developing ones. Second, the regression analysis indicates that a higher degree of financial integration is associated with a lower sensitivity of consumption to income. This finding is robust to the use of a wide range of empirical specifications, country-specific characteristics, and other controls, such as interest rates and outcome-based measures of financial integration. The paper also discusses other potential sources of the temporal changes in the sensitivity of consumption to income. 2016-05-04T21:41:10Z 2016-05-04T21:41:10Z 2016-04 Working Paper http://documents.worldbank.org/curated/en/2016/05/26330512/sensitivity-consumption-income-vary-over-time-international-evidence http://hdl.handle.net/10986/24234 English en_US Policy Research Working Paper;No. 7659 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
PER CAPITA CONSUMPTION NATIONAL OUTPUT GROWTH RATES MONETARY POLICY CLOSED ECONOMIES DEPOSITS LAGS INTERNATIONAL CAPITAL MONETARY ECONOMICS DISPOSABLE INCOME INCOME INTEREST RATE OF RETURN INTEREST RATE EXCHANGE STOCK MARKET DISCOUNT RATE ECONOMIC REVIEW LIQUIDITY DEVELOPING COUNTRIES EQUITY MARKET EXPORTS ELASTICITY NEGATIVE LINK POLITICAL ECONOMY DEVELOPING ECONOMIES PORTFOLIO INTERNATIONAL BUSINESS INTERNATIONAL EQUITY OPTIMIZATION CROSS-COUNTRY CORRELATION INCENTIVES POLICY DISCUSSIONS VARIABLES PRICE REAL INCOME FINANCIAL INTEGRATION CONSUMPTION GROWTH PAYMENTS WEALTH SAVING AGGREGATE INCOME EMPIRICAL LITERATURE DEVELOPING COUNTRY EMPIRICAL ANALYSIS DEVELOPMENT ADVANCED COUNTRIES FOREIGN TRADE TOTAL FACTOR PRODUCTIVITY SAVINGS GLOBAL ECONOMY DEVELOPMENT ECONOMICS NEGATIVE IMPACT ADVANCED ECONOMIES EXCHANGE RATES LIQUIDITY CONSTRAINTS PRODUCTIVITY ECONOMETRICS INTEREST RATES INTEREST RATE SHOCKS GLOBALIZATION DEBT MEASUREMENT ERROR FOREIGN ASSETS OPEN ECONOMY BUSINESS CYCLE PRODUCT REAL INTEREST RATE RISK SHARING UTILITY CROSS-COUNTRY INCOME FINANCIAL SYSTEM SERIAL CORRELATION LIBERALIZATION ECONOMIC RESEARCH EQUITY DATA AVAILABILITY CONSUMPTION BOND MARKETS CAPITAL CONTROLS CREDIT CONSTRAINTS CAPITAL MARKET INTEREST VOLATILITY COUNTRY RISK RAPID INCREASE FUTURE DEPENDENT VARIABLE INCOME SHOCKS FOREIGN DIRECT INVESTMENT CREDIT MACROECONOMICS POLITICAL SCIENCE PERMANENT INCOME UTILITY FUNCTION DYNAMIC PANEL AGGREGATE DEMAND REAL RATE ECONOMY POSITIVE CORRELATION AGGREGATE OUTPUT MEASUREMENT SHARES ASSETS REAL EXCHANGE RATE BENCHMARK TRADE LIBERALIZATION HIGH CORRELATION MONETARY POLICIES EQUAL WEIGHTS INTERNATIONAL PORTFOLIO OUTPUT CLOSED ECONOMY REGRESSION ANALYSIS INSURANCE BUSINESS CYCLES PERMANENT INCOME HYPOTHESIS TRADE FUTURE STUDIES GDP THEORY FINANCIAL DEVELOPMENT EQUITY MARKETS INVESTMENT BOND RANDOM WALK SHARE BANKING PRIVATE CONSUMPTION DYNAMIC PANEL FRAMEWORK CAPITAL ACCOUNTS POLICY RESEARCH EXCHANGE RATE RISK AVERSION LIABILITIES OPEN ECONOMIES MACROECONOMIC PERFORMANCE CAPITAL ACCOUNT DEVELOPMENT POLICY FUTURE RESEARCH |
| spellingShingle |
PER CAPITA CONSUMPTION NATIONAL OUTPUT GROWTH RATES MONETARY POLICY CLOSED ECONOMIES DEPOSITS LAGS INTERNATIONAL CAPITAL MONETARY ECONOMICS DISPOSABLE INCOME INCOME INTEREST RATE OF RETURN INTEREST RATE EXCHANGE STOCK MARKET DISCOUNT RATE ECONOMIC REVIEW LIQUIDITY DEVELOPING COUNTRIES EQUITY MARKET EXPORTS ELASTICITY NEGATIVE LINK POLITICAL ECONOMY DEVELOPING ECONOMIES PORTFOLIO INTERNATIONAL BUSINESS INTERNATIONAL EQUITY OPTIMIZATION CROSS-COUNTRY CORRELATION INCENTIVES POLICY DISCUSSIONS VARIABLES PRICE REAL INCOME FINANCIAL INTEGRATION CONSUMPTION GROWTH PAYMENTS WEALTH SAVING AGGREGATE INCOME EMPIRICAL LITERATURE DEVELOPING COUNTRY EMPIRICAL ANALYSIS DEVELOPMENT ADVANCED COUNTRIES FOREIGN TRADE TOTAL FACTOR PRODUCTIVITY SAVINGS GLOBAL ECONOMY DEVELOPMENT ECONOMICS NEGATIVE IMPACT ADVANCED ECONOMIES EXCHANGE RATES LIQUIDITY CONSTRAINTS PRODUCTIVITY ECONOMETRICS INTEREST RATES INTEREST RATE SHOCKS GLOBALIZATION DEBT MEASUREMENT ERROR FOREIGN ASSETS OPEN ECONOMY BUSINESS CYCLE PRODUCT REAL INTEREST RATE RISK SHARING UTILITY CROSS-COUNTRY INCOME FINANCIAL SYSTEM SERIAL CORRELATION LIBERALIZATION ECONOMIC RESEARCH EQUITY DATA AVAILABILITY CONSUMPTION BOND MARKETS CAPITAL CONTROLS CREDIT CONSTRAINTS CAPITAL MARKET INTEREST VOLATILITY COUNTRY RISK RAPID INCREASE FUTURE DEPENDENT VARIABLE INCOME SHOCKS FOREIGN DIRECT INVESTMENT CREDIT MACROECONOMICS POLITICAL SCIENCE PERMANENT INCOME UTILITY FUNCTION DYNAMIC PANEL AGGREGATE DEMAND REAL RATE ECONOMY POSITIVE CORRELATION AGGREGATE OUTPUT MEASUREMENT SHARES ASSETS REAL EXCHANGE RATE BENCHMARK TRADE LIBERALIZATION HIGH CORRELATION MONETARY POLICIES EQUAL WEIGHTS INTERNATIONAL PORTFOLIO OUTPUT CLOSED ECONOMY REGRESSION ANALYSIS INSURANCE BUSINESS CYCLES PERMANENT INCOME HYPOTHESIS TRADE FUTURE STUDIES GDP THEORY FINANCIAL DEVELOPMENT EQUITY MARKETS INVESTMENT BOND RANDOM WALK SHARE BANKING PRIVATE CONSUMPTION DYNAMIC PANEL FRAMEWORK CAPITAL ACCOUNTS POLICY RESEARCH EXCHANGE RATE RISK AVERSION LIABILITIES OPEN ECONOMIES MACROECONOMIC PERFORMANCE CAPITAL ACCOUNT DEVELOPMENT POLICY FUTURE RESEARCH Islamaj, Ergys Kose, M. Ayhan How Does the Sensitivity of Consumption to Income Vary Over Time? : International Evidence |
| relation |
Policy Research Working Paper;No. 7659 |
| description |
This paper studies how the sensitivity
of consumption to income has changed over time as the degree
of financial integration has risen. In standard theory,
greater financial integration facilitates international
borrowing and lending, helping to reduce the sensitivity of
consumption growth to fluctuations in income. The paper
examines the empirical validity of this prediction using an
array of indicators of financial integration for a large
sample of advanced and developing countries over the period
1960-2011. Two main results are reported. First, the
sensitivity of consumption to income has declined over time
as the degree of financial integration has risen. The
decline has been more pronounced in advanced economies than
in developing ones. Second, the regression analysis
indicates that a higher degree of financial integration is
associated with a lower sensitivity of consumption to
income. This finding is robust to the use of a wide range of
empirical specifications, country-specific characteristics,
and other controls, such as interest rates and outcome-based
measures of financial integration. The paper also discusses
other potential sources of the temporal changes in the
sensitivity of consumption to income. |
| format |
Working Paper |
| author |
Islamaj, Ergys Kose, M. Ayhan |
| author_facet |
Islamaj, Ergys Kose, M. Ayhan |
| author_sort |
Islamaj, Ergys |
| title |
How Does the Sensitivity of Consumption to Income Vary Over Time? : International Evidence |
| title_short |
How Does the Sensitivity of Consumption to Income Vary Over Time? : International Evidence |
| title_full |
How Does the Sensitivity of Consumption to Income Vary Over Time? : International Evidence |
| title_fullStr |
How Does the Sensitivity of Consumption to Income Vary Over Time? : International Evidence |
| title_full_unstemmed |
How Does the Sensitivity of Consumption to Income Vary Over Time? : International Evidence |
| title_sort |
how does the sensitivity of consumption to income vary over time? : international evidence |
| publisher |
World Bank, Washington, DC |
| publishDate |
2016 |
| url |
http://documents.worldbank.org/curated/en/2016/05/26330512/sensitivity-consumption-income-vary-over-time-international-evidence http://hdl.handle.net/10986/24234 |
| _version_ |
1764456004255219712 |