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

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.


Issue Date:
2013-11
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/160523
Total Pages:
24
JEL Codes:
D12; D22; D92; G21; O12; O16
Series Statement:
Economic Growth Center Discussion Paper
1034




 Record created 2017-04-01, last modified 2017-04-26

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