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Liquidity Constraints and Imperfect Information in Subprime Lending Author info | Abstract | Publisher info | Download info | Related research | Statistics William Adams
Liran Einav
Jonathan Levin
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We present new evidence on consumer liquidity constraints and the credit market conditions that might give rise to them. We analyze unique data from a large auto sales company serving the subprime market. Short-term liquidity appears to be a key driver of consumer behavior. Demand increases sharply during tax rebate season and purchases are highly sensitive to down-payment requirements. Lenders also face substantial informational problems. Default rates rise significantly with loan size, providing a rationale for loan caps, and higher-risk borrowers demand larger loans. This adverse selection is mitigated, however, by risk-based pricing. (JEL D14, D82, D83, G21)
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Article provided by American Economic Association in its journal American Economic Review .
Volume (Year): 99 (2009)
Issue (Month): 1 (March)
Pages: 49-84
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Handle: RePEc:aea:aecrev:v:99:y:2009:i:1:p:49-84Contact details of provider: Email: Web page: http://www.aeaweb.org/aer/ More information through EDIRC
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