Financial Inclusion, Productivity Shocks, and Consumption Volatility in Emerging Economies

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...

Full description

Bibliographic Details
Main Authors:	Bhattacharya, Rudrani, Patnaik, Ila
Format:	Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2015
Subjects:	GROWTH RATES MONETARY POLICY DEPOSIT FINANCIAL SERVICES FOREIGN CAPITAL FOREIGN DEBT DEPOSITS CAPITAL ACCUMULATION STOCK STRUCTURAL CHANGE DISPOSABLE INCOME INCOME INTEREST EMERGING ECONOMIES INTEREST RATE REAL GDP EXCHANGE DISCOUNT RATE MACROECONOMIC POLICY BANKING SERVICES INTERNATIONAL FINANCIAL MARKETS LIQUIDITY DEVELOPING COUNTRIES EXPORTS ELASTICITY POLITICAL ECONOMY DEVELOPING ECONOMIES INTERNATIONAL LABOUR ORGANIZATION ECONOMIC RELATIONS INTERNATIONAL BUSINESS WORLD DEVELOPMENT INDICATORS VARIABLES CAPITAL STOCK INPUTS FINANCIAL INTEGRATION SAVINGS INSTRUMENTS DEVELOPING COUNTRY TRENDS ECONOMIC OUTLOOK CENTRAL BANK SMOOTHING CONSUMPTION DEVELOPMENT ADVANCED COUNTRIES TRADE BALANCE TOTAL FACTOR PRODUCTIVITY SAVINGS DEVELOPMENT ECONOMICS INFORMAL ECONOMY COMMERCIAL BANK ADVANCED ECONOMIES CAPITAL CONTROL RESERVE BANK VOLATILITIES PRODUCTIVITY INTEREST RATES EMERGING MARKET NET EXPORTS DEBT FINANCIAL FLOWS PUBLIC FINANCE OPEN ECONOMY SOCIAL PROTECTION FINANCIAL REFORMS REAL INTEREST RATE AGENCY COSTS UTILITY FINANCIAL SYSTEM LIBERALIZATION BANK DEPOSITS FLOWS OF CAPITAL EMERGING MARKETS PRODUCTIVITY GROWTH CONSUMPTION GROSS FIXED CAPITAL FORMATION CAPITAL CONTROLS CREDIT CONSTRAINTS EMERGING MARKET BUSINESS CAPITAL FINANCIAL TRANSACTIONS VOLATILITY HOME COUNTRY FINANCIAL CRISIS FUTURE VALUE FOREIGN DIRECT INVESTMENT CREDIT FIXED CAPITAL MACROECONOMICS PERMANENT INCOME ECONOMIC FLUCTUATIONS ECONOMY AGRICULTURE CONSUMERS CAPITAL FLOWS EQUATIONS MEASUREMENT BENCHMARK PRODUCTION FUNCTION TERMS OF CAPITAL OUTPUT CLOSED ECONOMY BANK ACCOUNTS LONG-TERM INVESTMENTS EXPOSURE BUSINESS CYCLES PERMANENT INCOME HYPOTHESIS ECONOMIC DEVELOPMENT TRADE GDP GOODS THEORY EMERGING ECONOMY FINANCIAL DEVELOPMENT FINANCIAL MARKET GROWTH RATE INVESTMENT BOND RANDOM WALK COMMERCIAL BANKS SHARE FINANCIAL MARKETS BANKING FINANCIAL ASSETS INVESTMENTS CAPITAL ACCOUNTS EXCHANGE RATE FINANCIAL REFORM TOTAL OUTPUT FINANCIAL SECTOR OPEN ECONOMIES COMMODITY FINANCIAL CONSTRAINTS CAPITAL ACCOUNT PRICES FINANCIAL SECTOR DEVELOPMENT DEVELOPMENT POLICY
Online Access:	http://documents.worldbank.org/curated/en/2015/06/24582431/financial-inclusion-productivity-shocks-consumption-volatility-emerging-economies http://hdl.handle.net/10986/22161

id	okr-10986-22161
recordtype	oai_dc
spelling	okr-10986-221612021-04-23T14:04:07Z Financial Inclusion, Productivity Shocks, and Consumption Volatility in Emerging Economies Bhattacharya, Rudrani Patnaik, Ila GROWTH RATES MONETARY POLICY DEPOSIT FINANCIAL SERVICES FOREIGN CAPITAL FOREIGN DEBT DEPOSITS CAPITAL ACCUMULATION STOCK STRUCTURAL CHANGE DISPOSABLE INCOME INCOME INTEREST EMERGING ECONOMIES INTEREST RATE REAL GDP EXCHANGE DISCOUNT RATE MACROECONOMIC POLICY BANKING SERVICES INTERNATIONAL FINANCIAL MARKETS LIQUIDITY DEVELOPING COUNTRIES EXPORTS ELASTICITY POLITICAL ECONOMY DEVELOPING ECONOMIES INTERNATIONAL LABOUR ORGANIZATION ECONOMIC RELATIONS INTERNATIONAL BUSINESS WORLD DEVELOPMENT INDICATORS VARIABLES CAPITAL STOCK INPUTS FINANCIAL INTEGRATION SAVINGS INSTRUMENTS DEVELOPING COUNTRY TRENDS ECONOMIC OUTLOOK CENTRAL BANK SMOOTHING CONSUMPTION DEVELOPMENT ADVANCED COUNTRIES TRADE BALANCE TOTAL FACTOR PRODUCTIVITY SAVINGS DEVELOPMENT ECONOMICS INFORMAL ECONOMY COMMERCIAL BANK ADVANCED ECONOMIES CAPITAL CONTROL RESERVE BANK VOLATILITIES PRODUCTIVITY INTEREST RATES EMERGING MARKET NET EXPORTS DEBT FINANCIAL FLOWS PUBLIC FINANCE OPEN ECONOMY SOCIAL PROTECTION FINANCIAL REFORMS REAL INTEREST RATE AGENCY COSTS UTILITY FINANCIAL SYSTEM LIBERALIZATION BANK DEPOSITS FLOWS OF CAPITAL EMERGING MARKETS PRODUCTIVITY GROWTH CONSUMPTION GROSS FIXED CAPITAL FORMATION CAPITAL CONTROLS CREDIT CONSTRAINTS EMERGING MARKET BUSINESS CAPITAL FINANCIAL TRANSACTIONS VOLATILITY HOME COUNTRY FINANCIAL CRISIS FUTURE VALUE FOREIGN DIRECT INVESTMENT CREDIT FIXED CAPITAL MACROECONOMICS PERMANENT INCOME ECONOMIC FLUCTUATIONS ECONOMY AGRICULTURE CONSUMERS CAPITAL FLOWS EQUATIONS MEASUREMENT BENCHMARK PRODUCTION FUNCTION TERMS OF CAPITAL OUTPUT CLOSED ECONOMY BANK ACCOUNTS LONG-TERM INVESTMENTS EXPOSURE BUSINESS CYCLES PERMANENT INCOME HYPOTHESIS ECONOMIC DEVELOPMENT TRADE GDP GOODS THEORY EMERGING ECONOMY FINANCIAL DEVELOPMENT FINANCIAL MARKET GROWTH RATE INVESTMENT BOND RANDOM WALK COMMERCIAL BANKS SHARE FINANCIAL MARKETS BANKING FINANCIAL ASSETS INVESTMENTS CAPITAL ACCOUNTS EXCHANGE RATE FINANCIAL REFORM TOTAL OUTPUT FINANCIAL SECTOR OPEN ECONOMIES COMMODITY FINANCIAL CONSTRAINTS CAPITAL ACCOUNT PRICES FINANCIAL SECTOR DEVELOPMENT DEVELOPMENT POLICY 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. 2015-07-14T22:06:59Z 2015-07-14T22:06:59Z 2015-06 Working Paper http://documents.worldbank.org/curated/en/2015/06/24582431/financial-inclusion-productivity-shocks-consumption-volatility-emerging-economies http://hdl.handle.net/10986/22161 English en_US Policy Research Working Paper;No. 7288 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	GROWTH RATES MONETARY POLICY DEPOSIT FINANCIAL SERVICES FOREIGN CAPITAL FOREIGN DEBT DEPOSITS CAPITAL ACCUMULATION STOCK STRUCTURAL CHANGE DISPOSABLE INCOME INCOME INTEREST EMERGING ECONOMIES INTEREST RATE REAL GDP EXCHANGE DISCOUNT RATE MACROECONOMIC POLICY BANKING SERVICES INTERNATIONAL FINANCIAL MARKETS LIQUIDITY DEVELOPING COUNTRIES EXPORTS ELASTICITY POLITICAL ECONOMY DEVELOPING ECONOMIES INTERNATIONAL LABOUR ORGANIZATION ECONOMIC RELATIONS INTERNATIONAL BUSINESS WORLD DEVELOPMENT INDICATORS VARIABLES CAPITAL STOCK INPUTS FINANCIAL INTEGRATION SAVINGS INSTRUMENTS DEVELOPING COUNTRY TRENDS ECONOMIC OUTLOOK CENTRAL BANK SMOOTHING CONSUMPTION DEVELOPMENT ADVANCED COUNTRIES TRADE BALANCE TOTAL FACTOR PRODUCTIVITY SAVINGS DEVELOPMENT ECONOMICS INFORMAL ECONOMY COMMERCIAL BANK ADVANCED ECONOMIES CAPITAL CONTROL RESERVE BANK VOLATILITIES PRODUCTIVITY INTEREST RATES EMERGING MARKET NET EXPORTS DEBT FINANCIAL FLOWS PUBLIC FINANCE OPEN ECONOMY SOCIAL PROTECTION FINANCIAL REFORMS REAL INTEREST RATE AGENCY COSTS UTILITY FINANCIAL SYSTEM LIBERALIZATION BANK DEPOSITS FLOWS OF CAPITAL EMERGING MARKETS PRODUCTIVITY GROWTH CONSUMPTION GROSS FIXED CAPITAL FORMATION CAPITAL CONTROLS CREDIT CONSTRAINTS EMERGING MARKET BUSINESS CAPITAL FINANCIAL TRANSACTIONS VOLATILITY HOME COUNTRY FINANCIAL CRISIS FUTURE VALUE FOREIGN DIRECT INVESTMENT CREDIT FIXED CAPITAL MACROECONOMICS PERMANENT INCOME ECONOMIC FLUCTUATIONS ECONOMY AGRICULTURE CONSUMERS CAPITAL FLOWS EQUATIONS MEASUREMENT BENCHMARK PRODUCTION FUNCTION TERMS OF CAPITAL OUTPUT CLOSED ECONOMY BANK ACCOUNTS LONG-TERM INVESTMENTS EXPOSURE BUSINESS CYCLES PERMANENT INCOME HYPOTHESIS ECONOMIC DEVELOPMENT TRADE GDP GOODS THEORY EMERGING ECONOMY FINANCIAL DEVELOPMENT FINANCIAL MARKET GROWTH RATE INVESTMENT BOND RANDOM WALK COMMERCIAL BANKS SHARE FINANCIAL MARKETS BANKING FINANCIAL ASSETS INVESTMENTS CAPITAL ACCOUNTS EXCHANGE RATE FINANCIAL REFORM TOTAL OUTPUT FINANCIAL SECTOR OPEN ECONOMIES COMMODITY FINANCIAL CONSTRAINTS CAPITAL ACCOUNT PRICES FINANCIAL SECTOR DEVELOPMENT DEVELOPMENT POLICY
spellingShingle	GROWTH RATES MONETARY POLICY DEPOSIT FINANCIAL SERVICES FOREIGN CAPITAL FOREIGN DEBT DEPOSITS CAPITAL ACCUMULATION STOCK STRUCTURAL CHANGE DISPOSABLE INCOME INCOME INTEREST EMERGING ECONOMIES INTEREST RATE REAL GDP EXCHANGE DISCOUNT RATE MACROECONOMIC POLICY BANKING SERVICES INTERNATIONAL FINANCIAL MARKETS LIQUIDITY DEVELOPING COUNTRIES EXPORTS ELASTICITY POLITICAL ECONOMY DEVELOPING ECONOMIES INTERNATIONAL LABOUR ORGANIZATION ECONOMIC RELATIONS INTERNATIONAL BUSINESS WORLD DEVELOPMENT INDICATORS VARIABLES CAPITAL STOCK INPUTS FINANCIAL INTEGRATION SAVINGS INSTRUMENTS DEVELOPING COUNTRY TRENDS ECONOMIC OUTLOOK CENTRAL BANK SMOOTHING CONSUMPTION DEVELOPMENT ADVANCED COUNTRIES TRADE BALANCE TOTAL FACTOR PRODUCTIVITY SAVINGS DEVELOPMENT ECONOMICS INFORMAL ECONOMY COMMERCIAL BANK ADVANCED ECONOMIES CAPITAL CONTROL RESERVE BANK VOLATILITIES PRODUCTIVITY INTEREST RATES EMERGING MARKET NET EXPORTS DEBT FINANCIAL FLOWS PUBLIC FINANCE OPEN ECONOMY SOCIAL PROTECTION FINANCIAL REFORMS REAL INTEREST RATE AGENCY COSTS UTILITY FINANCIAL SYSTEM LIBERALIZATION BANK DEPOSITS FLOWS OF CAPITAL EMERGING MARKETS PRODUCTIVITY GROWTH CONSUMPTION GROSS FIXED CAPITAL FORMATION CAPITAL CONTROLS CREDIT CONSTRAINTS EMERGING MARKET BUSINESS CAPITAL FINANCIAL TRANSACTIONS VOLATILITY HOME COUNTRY FINANCIAL CRISIS FUTURE VALUE FOREIGN DIRECT INVESTMENT CREDIT FIXED CAPITAL MACROECONOMICS PERMANENT INCOME ECONOMIC FLUCTUATIONS ECONOMY AGRICULTURE CONSUMERS CAPITAL FLOWS EQUATIONS MEASUREMENT BENCHMARK PRODUCTION FUNCTION TERMS OF CAPITAL OUTPUT CLOSED ECONOMY BANK ACCOUNTS LONG-TERM INVESTMENTS EXPOSURE BUSINESS CYCLES PERMANENT INCOME HYPOTHESIS ECONOMIC DEVELOPMENT TRADE GDP GOODS THEORY EMERGING ECONOMY FINANCIAL DEVELOPMENT FINANCIAL MARKET GROWTH RATE INVESTMENT BOND RANDOM WALK COMMERCIAL BANKS SHARE FINANCIAL MARKETS BANKING FINANCIAL ASSETS INVESTMENTS CAPITAL ACCOUNTS EXCHANGE RATE FINANCIAL REFORM TOTAL OUTPUT FINANCIAL SECTOR OPEN ECONOMIES COMMODITY FINANCIAL CONSTRAINTS CAPITAL ACCOUNT PRICES FINANCIAL SECTOR DEVELOPMENT DEVELOPMENT POLICY Bhattacharya, Rudrani Patnaik, Ila Financial Inclusion, Productivity Shocks, and Consumption Volatility in Emerging Economies
relation	Policy Research Working Paper;No. 7288
description	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.
format	Working Paper
author	Bhattacharya, Rudrani Patnaik, Ila
author_facet	Bhattacharya, Rudrani Patnaik, Ila
author_sort	Bhattacharya, Rudrani
title	Financial Inclusion, Productivity Shocks, and Consumption Volatility in Emerging Economies
title_short	Financial Inclusion, Productivity Shocks, and Consumption Volatility in Emerging Economies
title_full	Financial Inclusion, Productivity Shocks, and Consumption Volatility in Emerging Economies
title_fullStr	Financial Inclusion, Productivity Shocks, and Consumption Volatility in Emerging Economies
title_full_unstemmed	Financial Inclusion, Productivity Shocks, and Consumption Volatility in Emerging Economies
title_sort	financial inclusion, productivity shocks, and consumption volatility in emerging economies
publisher	World Bank, Washington, DC
publishDate	2015
url	http://documents.worldbank.org/curated/en/2015/06/24582431/financial-inclusion-productivity-shocks-consumption-volatility-emerging-economies http://hdl.handle.net/10986/22161
_version_	1764450318295236608

Financial Inclusion, Productivity Shocks, and Consumption Volatility in Emerging Economies

Similar Items