Follow the Money: Methods for Identifying Consumption and Investment Responses to a Liquidity Shock
27 Pages Posted: 10 Dec 2013
There are 3 versions of this paper
Follow the Money: Methods for Identifying Consumption and Investment Responses to a Liquidity Shock
Follow the Money: Methods for Identifying Consumption and Investment Responses to a Liquidity Shock
Date Written: December 2013
Abstract
Identifying the impacts of liquidity shocks on spending decisions is difficult methodologically but important for theory, practice, and policy. Using seven different methods on microenterprise loan applicants, we find striking results. Borrowers report uses of loan proceeds strategically, and more generally their reporting depends on elicitation method. Borrowers also interpret loan use questions differently than the key counterfactual: spending that would not have occurred sans loan. We identify the counterfactual using random assignment of loan approvals and short-run follow-up elicitation of major household and business cash outflows, and estimate that about 100% of loan-financed spending is on business inventory.
Keywords: consumption, fungibility, investment, liquidity constraint, liquidity shock, loan use, microcredit, microenterprise
JEL Classification: D12, D22, D92, G21, O12, O16
Suggested Citation: Suggested Citation