This paper uses survey information on a cross-section of Italian households to investigate the effects of credit availability on the choice between expenditure on durable goods (vehicles) and nondurable goods.
On the basis of simple regressions, we establish two stylized facts: nondurable expenditure strongly correlates with the value of the stock of vehicles; and reported credit availability has major, ambiguous effects on this tradeoff. We show that both findings can be explained in a utility-consistent, forward-looking framework, where the stock of durables can be used as collateral for credit. We then argue that estimating the structural relations predicted by this model is preferable to estimating simple regressions, as the latter cannot always be interpreted in an economically meaningful way.
Our structural estimates broadly confirm the existence of credit-market effects, and reveal much variability of elasticities within the sample. They also allow to show how the shadow price of the liquidity constraint varies according to observable household characteristics and how it relates to reported credit availability.
This paper - presented at the Workshop on "Saving in Italy: Past and Future Trends, Household and Government Behaviour", held in Rome on 16-17 January 1992 - is part of a research project undertaken at the Bank of Italy. The Italian versions of all the contributions will be published in a special issue of "Contributi all'analisi economica".
