Financial Inclusion, Productivity Shocks, and Consumption Volatility in Emerging Economies

How does access to finance 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 furthe...

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Main Authors:	Bhattacharya, Rudrani, Patnaik, Ila
Format:	Journal Article
Language:	en_US
Published:	Published by Oxford University Press on behalf of the World Bank 2017
Subjects:	ACCESS TO FINANCE CONSUMPTION FINANCIAL REFORM ECONOMIC VOLATILITY FINANCIAL INCLUSION EMERGING ECONOMIES EMERGING MARKETS
Online Access:	http://hdl.handle.net/10986/27696

id	okr-10986-27696
recordtype	oai_dc
spelling	okr-10986-276962021-05-25T10:54:42Z Financial Inclusion, Productivity Shocks, and Consumption Volatility in Emerging Economies Bhattacharya, Rudrani Patnaik, Ila ACCESS TO FINANCE CONSUMPTION FINANCIAL REFORM ECONOMIC VOLATILITY FINANCIAL INCLUSION EMERGING ECONOMIES EMERGING MARKETS How does access to finance 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. This puzzle is addressed in the framework of an emerging economy model in which households face shocks to trend growth rate, and a fraction of them are financially constrained, with no access to financial services. Unconstrained households can respond to shocks to trend growth by raising current consumption more than the 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. 2017-08-09T21:16:34Z 2017-08-09T21:16:34Z 2016-01 Journal Article World Bank Economic Review 1564-698X http://hdl.handle.net/10986/27696 en_US CC BY-NC-ND 3.0 IGO http://creativecommons.org/licenses/by-nc-nd/3.0/igo World Bank Published by Oxford University Press on behalf of the World Bank Publications & Research :: Journal Article Publications & Research Europe and Central Asia South Asia India Turkey
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	en_US
topic	ACCESS TO FINANCE CONSUMPTION FINANCIAL REFORM ECONOMIC VOLATILITY FINANCIAL INCLUSION EMERGING ECONOMIES EMERGING MARKETS
spellingShingle	ACCESS TO FINANCE CONSUMPTION FINANCIAL REFORM ECONOMIC VOLATILITY FINANCIAL INCLUSION EMERGING ECONOMIES EMERGING MARKETS Bhattacharya, Rudrani Patnaik, Ila Financial Inclusion, Productivity Shocks, and Consumption Volatility in Emerging Economies
geographic_facet	Europe and Central Asia South Asia India Turkey
description	How does access to finance 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. This puzzle is addressed in the framework of an emerging economy model in which households face shocks to trend growth rate, and a fraction of them are financially constrained, with no access to financial services. Unconstrained households can respond to shocks to trend growth by raising current consumption more than the 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.
format	Journal Article
author	Bhattacharya, Rudrani Patnaik, Ila
author_facet	Bhattacharya, Rudrani Patnaik, Ila
author_sort	Bhattacharya, Rudrani
title	Financial Inclusion, Productivity Shocks, and Consumption Volatility in Emerging Economies
title_short	Financial Inclusion, Productivity Shocks, and Consumption Volatility in Emerging Economies
title_full	Financial Inclusion, Productivity Shocks, and Consumption Volatility in Emerging Economies
title_fullStr	Financial Inclusion, Productivity Shocks, and Consumption Volatility in Emerging Economies
title_full_unstemmed	Financial Inclusion, Productivity Shocks, and Consumption Volatility in Emerging Economies
title_sort	financial inclusion, productivity shocks, and consumption volatility in emerging economies
publisher	Published by Oxford University Press on behalf of the World Bank
publishDate	2017
url	http://hdl.handle.net/10986/27696
_version_	1764465918616797184

Financial Inclusion, Productivity Shocks, and Consumption Volatility in Emerging Economies

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