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Evaluating the Spatial Consequence of Interest Rate Ceiling Using a Spatial Regime Change Approach

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  • Onyumbe E. Lukongo
  • Thomas Miller

Abstract

The article provides the empirical framework and steps toward the evaluation of the spatial consequence of the 17% interest rate ceiling in Arkansas using a new database from the trade association for installment lenders, the American Financial Services Association. The specific contribution of this study is to build and apply the installment loan accessibility index within the context of the spatial regime models. Results suggest strong evidence of spatial clustering of counties with similar (low or high) installment loan usage rates across the study area and two spatial regimes at work. The loan accessibility index is a strong predictor of the installment loan usage in the study area. That is, an increase in the loan acquisition costs due to the 17% interest rate cap puts interior counties’ residents at disadvantage compared with residents of border counties who can cross the borders to get small dollar loans. JEL Classifications : C51, C52, G23, G28

Suggested Citation

  • Onyumbe E. Lukongo & Thomas Miller, 2018. "Evaluating the Spatial Consequence of Interest Rate Ceiling Using a Spatial Regime Change Approach," The American Economist, Sage Publications, vol. 63(2), pages 166-186, October.
    • Handle: RePEc:sae:amerec:v:63:y:2018:i:2:p:166-186
    DOI: 10.1177/0569434517745490
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    References listed on IDEAS

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    More about this item

    Keywords

    interest rate ceiling; spatial regime change; loan acquisition cost; Arkansas; loan accessibility index;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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