The Financial Crisis And Consumption

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Executive Summary

The U.S. consumption boom of the mid-2000s and the post-1980 downtrend in the U.S. saving rate have been linked to increases in the availability of consumer credit and the liquidity of wealth. The recent financial crisis and rise in the U.S. saving rate have raised concerns that declines in wealth - particularly housing wealth - coupled with tighter availability of consumer credit induced by higher financial frictions will give rise to a prolonged period of weak consumer spending. Nevertheless, rigorous time series linkages among these factors and consumption have not really been established, partly owing to a lack of data availability and to endogeneity issues.

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