The analysis on the credit card bubble in Korea with the permanent income hypothesis and the liquidity constraint

We examined how the Permanent Income Hypothesis (PIH) explains differences in the consumption patterns between card bubble periods and non-bubble periods with KLIPS panel data. From empirical results, with regard to the food consumption, the PIH represents significant results for the low income household, while the middle income households had the liquidity constraint. For the health and medical service consumption, all households were free from liquidity constraints except for the year when the credit card crunch occurred. For total consumption, the high income households were free from the liquidity constraint. On the other hand, the middle income households confronted a liquidity constraint. However, the low income households were free from the liquidity constraint in the card bubble periods, while the PIH was rejected in the non-bubble periods. Finally, we can argue that abolishing the ceiling on credit card cash-advance services has the same effect as eliminating borrowing constraints.