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A Model of Money and Credit, with Application to the Credit Card Debt Puzzle

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  • Irina A. Telyukova
  • Randall Wright

Abstract

Many individuals simultaneously have significant credit card debt and money in the bank. The so-called credit card debt puzzle is, given high interest rates on credit cards and low interest rates on bank accounts, why not pay down this debt? Economists have gone to some lengths to explain this. As an alternative, we present a natural extension of the standard model in monetary economics to incorporate consumer debt, which we think is interesting in its own right, and which shows that the coexistence of debt and money in the bank is no puzzle

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File URL: http://repec.org/sed2006/up.30503.1135265528.pdf
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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 45.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:45

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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Web page: http://www.EconomicDynamics.org/society.htm
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Keywords: Money; credit; monetary search models; credit card debt puzzle;

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References

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