The Household Balance Sheet and Durable Consumer Expenditures: An Empirical Investigation for The Netherlands, 1972–93

Abstract

This paper examines the relationship between the household balance sheet and consumer durables expenditure. A number of observers have pointed to the negative effect of balance sheet restructuring as an explanation for the slow recovery from the early 1990s’ recession in some OECD countries. The household balance sheet may also provide a channel of transmission of monetary policy. For The Netherlands we find no evidence of the claim that “excessive” household debt ratios are directly responsible for slowing down consumer durables expenditure. Household wealth is clearly important. The empirical results provide some minor evidence for the extended life cycle-permanent income model, which includes the liquidity hypothesis developed by Mishkin (1976).