The implications of financial risk for household consumption under macroprudential policy rules
Οι συνέπειες του χρηματοοικονομικού κινδύνου για την καταναλωτική συμπεριφορά στο πλαίσιο κανόνων μακροπροληπτικής πολιτικής
Μπεχλιούλης, Αλέξανδρος Π.
Bechlioulis, Alexandros P.
KeywordsConsumer behavior ; Household consumption ; Non-performing loans in consumer credit markets ; Euler equation for consumption
This dissertation studies the impact of consumer debt non-payment on household consumption decisions in the presence of macroprudential policy rules, which take the form of borrowing constraints or imposition of penalty premiums on the borrowing interest rate. Chapter 2 develops a dynamic equilibrium model that analyzes the role of default in consumption decisions. The default is studied in the context of two-period overlapping processes of consumer behavior assuming that penalty costs are imposed on borrowers if they are delinquent in the first period and are subsequently refinanced by banks. From the analytical solution of the household intertemporal optimization problem, an augmented Euler equation for consumption is obtained, as a function inter alia of an expected default factor which determines, in a static equilibrium context, the optimal value of the percentage of debt repaid. Chapter 3 studies delinquent and non-performing loans in consumer credit markets and their implications for consumer behavior. By introducing endogenously non-payment of debt in the intertemporal optimization problem of the representative household, an augmented consumption Euler equation is derived analytically which features a risk factor in terms of expected non-performing debt and delinquent debt. Τhe presence of the risk factor differentiates the estimated values of the preference parameters and enhances the model's structure in comparison to the benchmark representative agent model with full debt repayment, which seems to be an incomplete description of consumer behavior. Chapter 4 analyzes the assumption of multiplicative non-separable (Cobb-Douglas) consumer preferences as a key assumption for analyzing the interdependence of consumption and leisure choices. The consumer utility maximization problem under these preferences is solved and a simultaneous system of two equations is derived, corresponding to a static and an inter-temporal equation of consumption and leisure choice. The system is estimated with GMM to obtain consistent estimates of the consumer's preference parameters, of which the relative weight of consumption in the utility function is found to be much higher than that commonly assumed in DSGE model calibration exercises. Chapter 5 examines whether the consumption behavior of a borrowing constrained household is affected by debt non-payment. From the household's intertemporal maximization problem a two equation model is derived consisting of augmented forms of the standard consumption Euler equation and static labor supply equation, and use nonlinear GMM to estimate its equations. The results show that the credit constrained household tends to be more patient against future consumption needs under debt non-payment. An estimate of the household's borrowing limit, i.e. its debt-payment-to-income ratio, is also obtained. Our results are found to be robust to a number of specification tests.