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The Consumption Process Implied by an Efficient Credit Contract

Working Paper 499 | Published June 1, 1992

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Authors

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Soo Nam Oh

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Edward J. Green Senior Policy Advisor, Federal Reserve Bank of Chicago

The Consumption Process Implied by an Efficient Credit Contract

Abstract

In this paper we explain why markets in noncontingent debt securities might be a stable form of market organization for intermediation to households. Efficient-contract allocation might be supported by these markets because households' relationships with their intermediaries do not exactly parallel the explicit form of the noncontingent contracts that they explicitly sign with one another. Also we show that the efficient-contract model can be distinguished from alternative models within the time-series framework that has been widely used to study households' consumption patterns.