Do Liquidity Constraints and Interest Rates Matter for Consumer Behavior? Evidence from Credit Card Data
Опубликовано на портале: 27-07-2004
2001
Тематический раздел:
This paper utilizes a unique new dataset of credit card accounts to analyze how people
respond to changes in credit supply. The data consist of a panel of thousands of
individual credit card accounts from several different card issuers, with associated
credit bureau data. We estimate both marginal propensities to consume (MPCs) out
of liquidity and interest-rate elasticities. We also evaluate the ability of different
models of consumption to rationalize our results, distinguishing the Permanent-Income
Hypothesis (PIH), liquidity constraints, precautionary saving, and behavioral models.
We find that increases in credit limits generate an immediate and significant rise
in debt, counter to the PIH. The average 'MPC out of liquidity' (dDebt/dLimit) ranges
between 10%-14%. The MPC is much larger for people starting near their limits, consistent
with binding liquidity constraints. However, the MPC is significant even for people
starting well below their limit. We show this response is consistent with buffer-stock
models of precautionary saving. Nonetheless there are other results that conventional
models cannot easily explain, e.g. why so many people are borrowing on their credit
cards, and simultaneously holding low yielding assets. Unlike most other studies,
we also find strong effects from changes in account-specific interest rates. The
long-run elasticity of debt to the interest rate is approximately -1.3. Less than
half of this elasticity represents balance-shifting across cards, with most reflecting
net changes in total borrowing. The elasticity is larger for decreases in interest
rates than for increases, which can explain the widespread use of temporary promotional
rates. The elasticity is smaller for people starting near their credit limits, again
consistent with liquidity constraints.
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