IMPACT OF CONSUMER INSTALLMENT DEBT ON FOOD EXPENDITURES

Trends in consumer installment credit over the period 1980 to 1989 are discussed; as well, a two-equation recursive model is developed to id entify and assess the impact of installment credit on food expenditure s. The first equation concerns factors affecting the ratio of consumer installment credit to personal disposable income, namely habit persis tence, expected income, the prime interest rate, the unemployment rate , and the percentage of the population aged 25 to 44. The second equat ion focuses on factors affecting real per capita food expenditures, na mely the real price of food, real per capita personal disposable incom e, seasonality, and a polynomial distributed lag of the measure of the ratio of consumer installment credit to personal disposable income fr om the first equation. The ratio of installment credit to personal dis posable income has a positive effect on food expenditures; over the lo ng run a one percent change in this ratio leads to a 0.15 percent chan ge in real per capita food expenditures. On average, it takes just ove r six months for a change in this ratio to be transferred to food expe nditures.