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The Demand for Credit Cards: Evidence from the Survey of Consumer Finances

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  • Edward Castronova
  • Paul Hagstrom
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    Abstract

    We analyze data from the Survey of Consumer Finances estimate the response of credit card demand to standard price and income effects. We model credit card demand as a two-stage process, with consumers obtaining limits in the first stage and then borrowing some fraction of those limits in the second. We estimate this model with a nested tobit procedure. We also treat the demand for limits as one equation in a two-equation supply-demand model. We estimate this model with simple 2SLS, instrumenting for the price variable, the interest rate. The results of the first model suggest that most of the action in the market is in the demand for limits, not the demand for balances. (JEL D1, G0) Copyright 2004, Oxford University Press.

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    Bibliographic Info

    Article provided by Western Economic Association International in its journal Economic Inquiry.

    Volume (Year): 42 (2004)
    Issue (Month): 2 (April)
    Pages: 304-318

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    Handle: RePEc:oup:ecinqu:v:42:y:2004:i:2:p:304-318

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    1. Cox, Donald & Jappelli, Tullio, 1990. "Credit Rationing and Private Transfers: Evidence from Survey Data," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 445-54, August.
    2. Paul S. Calem & Loretta J. Mester, 1995. "Consumer behavior and the stickiness of credit card interest rates," Working Papers 95-10, Federal Reserve Bank of Philadelphia.
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    Cited by:
    1. Ryan R. Brady, 2006. "Credit Cards and Monetary Policy: Are Households still liquidity-constrained?," Departmental Working Papers 12, United States Naval Academy Department of Economics.
    2. Ryan R. Brady, 2007. "Consumer Credit, Liquidity and the Transmission Mechanism of Monetary Policy," Departmental Working Papers 20, United States Naval Academy Department of Economics.
    3. Shubhasis Dey & Gene Mumy, 2005. "Determinants of Borrowing Limits on Credit Cards," Working Papers 05-7, Bank of Canada.
    4. Giuseppe Albanese & Guido de Blasio & Paolo Sestito, 2013. "Trust and preferences: evidence from survey data," Temi di discussione (Economic working papers) 911, Bank of Italy, Economic Research and International Relations Area.
    5. Irina Grafova, 2007. "Your Money or Your Life: Managing Health, Managing Money," Journal of Family and Economic Issues, Springer, vol. 28(2), pages 285-303, June.
    6. Thomas Bishop & Cheolbeom Park, 2010. "Borrowing Constraints, the Marginal Propensity to Consume, and the Effectiveness of Fiscal Policy," Discussion Paper Series 1008, Institute of Economic Research, Korea University.
    7. Yunker, James A. & Melkumian, Alla A., 2010. "The effect of capital wealth on optimal diversification: Evidence from the Survey of Consumer Finances," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(1), pages 90-98, February.
    8. Berg, Nathan & Kim, Jeong-Yoo, 2010. "Demand for Self Control: A model of Consumer Response to Programs and Products that Moderate Consumption," MPRA Paper 26593, University Library of Munich, Germany.

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