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Financial inclusion, productivity shocks, and consumption volatility in emerging economies (Inglês)

How does access to finance impact consumption volatility? Theory and evidence from advanced economies suggests that greater household access to finance smooths consumption. Evidence from emerging markets, where consumption is usually more volatile than income, indicates that financial reform further increases the volatility of consumption relative to output. This puzzle is addressed in the framework of an emerging economy model in which households face shocks to trend growth rate, and a fraction of them are financially constrained, with no access to financial services. Unconstrained households can respond to shocks to trend growth by raising current consumption more than the rise in current income. Financial reform increases the share of such households, leading to greater relative consumption volatility. Calibration of the model for pre- and post-financial reform in India provides support for the model’s key predictions.


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    Bhattacharya,Rudrani, Patnaik,Ila

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    Documento de trabalho sobre pesquisa de políticas

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    Regiões Mundiais,

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    Financial inclusion, productivity shocks, and consumption volatility in emerging economies

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    consumption volatility;Emerging economies;emerging economy;access to international financial market;output volatility;access to financial service;number of bank accounts;open economy;business cycle;reserve bank of india;gross fixed capital formation;access to banking service;properties of business cycle;interest rate to change;permanent income;access to finance;trend growth;total consumption;financial sector reform;fluctuations in consumption;real interest rate;capital account openness;aggregate production function;real business cycle;increase in consumption;world development indicator;business cycle volatility;domestic financial system;access of households;share of output;world interest rate;fixed capital stock;international financial statistic;source capital;share of labor;conditions of employment;total factor productivity;current consumption;commercial bank branch;stock of capital;steady state level;high growth rate;amount of debt;foreign interest rate;volatility in output;international economic relation;private consumption expenditure;random walk process;response of consumption;availability of data;per capita consumption;per capita investment;permanent income hypothesis;rate of depreciation;lending interest rate;general equilibrium model;increase in income;global financial crisis;negative income shock;informal sector worker;formal sector employment;decline in investment;rise in consumption;credit market imperfection;terms of trade;term capital;domestic financial sector;relative volatility;financial sector development;flow of capital;proof of proposition;macroeconomic time series;aggregate capital stock;quadratic capital adjustment;pattern of change;current income;trade balance;transitory shock;foreign capital;investment cycle;transitory income;financial constraint;foreign borrowing;parameter value;advanced economy;bank deposit;technology shock;financial deepening;standard deviation;cyclical component;consumption relative;macroeconomic fluctuation;macroeconomic volatility;total debt;consumption cycle;



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