Description

This paper investigates the determinants of credit demand in the presence of borrowing constraints for the Chilean economy using a recently collected detailed and innovative data set, the Households Financial Survey. The estimation procedure employed allows for the observed debt to be a function of multiple selection rules and incorporates the endogeneity of income and assets into the debt equation. The paper provides compelling evidence that the relationship between household income and debt, both secured and non secured, is highly non linear. This result has clear implications for the level of household debt in the face of financial deregulation.