Consumption, money and lending: a joint model for the UK household sector

Abstract

Previous research has investigated consumers' expenditure and money demand as separable equations. This study estimates them jointly as driven by the same influences. Credit is also included as a potential third variable that might provide a source of additional information about the monetary transmission mechanism. Consumption, money and lending equations are modelled as an interdependent system, and the significance of lending for consumption and money is tested. The results using UK household sector data show that a stable credit equation does exist in parallel with money demand and consumption equations, and that interactions modelled in a conditional vector equilibrium correction system are favoured over independent equations.

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