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RESEARCH PRODUCT

An empirical investigation of the effect of borrowing constraints on Spanish consumption

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This work analyses the relevance of borrowing constraints on the intertemporal behaviour of Spanish non-durable consumption. We estimate Euler equations with cohort data extracted from the "Encuesta Continua de Presupuestos Familiares" (ECPF) for the period 1985-1993. The results are robust to the use of different estimators to eliminate fixed individual effects, to different specifications of the model, to the effect of uncertainty and to the presence of habits in consumption. Our results allow us to conclude that non-durable consumption of a considerable fraction of the Spanish population is affected by borrowing constraints. At the same time, and in accordance with similar results for other countries, we confirm that borrowing constraints are especially important for the young.