Follow the Money: Methods for Identifying Consumption and Investment Responses to a Liquidity Shock

27 Pages Posted: 10 Dec 2013

See all articles by Dean S. Karlan

Dean S. Karlan

Yale University; Northwestern University - Kellogg School of Management; Innovations for Poverty Action; Massachusetts Institute of Technology (MIT) - Abdul Latif Jameel Poverty Action Lab (J-PAL); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Adam Osman

University of Illinois at Urbana-Champaign; Massachusetts Institute of Technology (MIT) - Abdul Latif Jameel Poverty Action Lab (J-PAL); Economic Research Forum (ERF)

Jonathan Zinman

Dartmouth College; Innovations for Poverty Action; Jameel Poverty Action Lab; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

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

Karlan, Dean S. and Karlan, Dean S. and Osman, Adam and Zinman, Jonathan, Follow the Money: Methods for Identifying Consumption and Investment Responses to a Liquidity Shock (December 2013). CEPR Discussion Paper No. DP9773, Available at SSRN: https://ssrn.com/abstract=2365828

Dean S. Karlan (Contact Author)

Yale University ( email )

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Northwestern University - Kellogg School of Management ( email )

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Innovations for Poverty Action ( email )

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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR) ( email )

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Adam Osman

University of Illinois at Urbana-Champaign ( email )

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Champaign, IL Champaign 61820
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Massachusetts Institute of Technology (MIT) - Abdul Latif Jameel Poverty Action Lab (J-PAL) ( email )

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Economic Research Forum (ERF) ( email )

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(P.O. Box: 12311)
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Jonathan Zinman

Dartmouth College ( email )

Hanover, NH 03755
United States
603-646-0075 (Phone)

HOME PAGE: http://https://sites.dartmouth.edu/jzinman/

Innovations for Poverty Action

1731 Connecticut Ave, 4th floor
New Haven, CT 20009
United States

Jameel Poverty Action Lab

E60-246
77 Massachusetts Avenue
Cambridge, MA 02139
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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