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

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Author Info
Edward Castronova
Paul Hagstrom
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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File URL: http://hdl.handle.net/10.1093/ei/cbh062
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Publisher Info
Article provided by Oxford University Press 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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Find related papers by JEL classification:
D1 - Microeconomics - - Household Behavior
G0 - Financial Economics - - General

Cited by:
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  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. [Downloadable!]
  2. Daniel D. Garcia-Swartz & Robert W. Hahn & Anne Layne-Farrar, 2006. "The Move Toward a Cashless Society: A Closer Look at Payment Instrument Economics," Review of Network Economics, Concept Economics, vol. 5(2), pages 175-198, June. [Downloadable!]
  3. Shubhasis Dey & Gene Mumy, 2005. "Determinants of Borrowing Limits on Credit Cards," Working Papers 05-7, Bank of Canada. [Downloadable!]
  4. 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. [Downloadable!]
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This page was last updated on 2009-12-15.

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