A demand function for private individual credit in Barbados

Author(s): Downes, Darrin A.; Craigwell, Roland C.; Greenidge, Kevin C.D. (1997)

Created 22 Jul, 1997
Categories Working Papers Roland Craigwell Special Collection
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In real terms, personal consumer borrowing has moved from BDS$0.5 million in 1966 to BDS$118.4 million in 1995. Utilising the standard two-period framework developed by Hartropp (1992), this paper examines the extent to which the variation in private consumer debt traded in the Barbadian economy can be explained by changes in demand-side factors like income, wealth, nominal and real interest rates, inflation and government policy controls. The Engle and Granger (1987) two-step procedure is utilized for estimation purposes. Regression results show that current wealth has a significant positive impact tin both the long-run and short-run. Real disposable income and inflation have significantly negative lagged effects on the amount of private consumer debt traded over the short-term. However, over the long-term real disposable income and inflation have positive and negative influences, respectively. Interest rate effects only matter in the long-run. In addition, government policy controls were found to restrict consumer borrowing in the short-term, a result which appears counter to Central Bank’s policy stance.

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