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Credit card debt puzzles

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  • Michael Haliassos
  • Michael Reiter

Abstract

Most US credit card holders revolve high-interest debt, often combined with substantial (i) asset accumulation by retirement, and (ii) low-rate liquid assets. Hyperbolic discounting can resolve only the former puzzle (Laibson et al., 2003). Bertaut and Haliassos (2002) proposed an 'accountant-shopper'framework for the latter. The current paper builds, solves, and simulates a fully-specified accountant-shopper model, to show that this framework can actually generate both types of co-existence, as well as target credit card utilization rates consistent with Gross and Souleles (2002). The benchmark model is compared to setups without self-control problems, with alternative mechanisms, and with impatient but fully rational shoppers.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 901.

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Date of creation: Nov 2005
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Handle: RePEc:upf:upfgen:901

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Web page: http://www.econ.upf.edu/

Related research

Keywords: Credit cards; debt; self control; household portfolios;

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Cited by:
  1. Heski Bar-Isaac & Vicente Cuñat, 2005. "Long term debt with Hidden Borrowing," Working Papers, New York University, Leonard N. Stern School of Business, Department of Economics 05-04, New York University, Leonard N. Stern School of Business, Department of Economics.
  2. Irina Grafova, 2007. "Your Money or Your Life: Managing Health, Managing Money," Journal of Family and Economic Issues, Springer, Springer, vol. 28(2), pages 285-303, June.
  3. Pier-André Bouchard St-Amant & Jean-Denis Garon, 2014. "Optimal Redistributive Pensions and the Cost of Self-Control," CESifo Working Paper Series 4937, CESifo Group Munich.
  4. Guiso, Luigi & Sodini, Paolo, 2012. "Household Finance: An Emerging Field," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8934, C.E.P.R. Discussion Papers.
  5. Gene Amromin & Jennifer Huang & Clemens Sialm, 2007. "The tradeoff between mortgage prepayments and tax-deferred retirement savings," NBER Chapters, in: Trans-Atlantic Public Economics Seminar (TAPES), Public Policy and Retirement, pages 2014-2040 National Bureau of Economic Research, Inc.
  6. Irina A. Telyukova & Randall Wright, 2007. "A model of money and credit, with application to the credit card debt puzzle," Working Paper 0711, Federal Reserve Bank of Cleveland.

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