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Credit Cards and Monetary Policy: Are Households still Liquidity-Constrained?

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Ryan R. Brady () (United States Naval Academy)

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Abstract

Liquidity-constrained households who borrow heavily on credit cards may be an important propagation source for the transmission of monetary policy, through rising interest rates or through credit channels. However, credit card use also suggests that households are more liquid, which may dampen the propagation of monetary policy. In this paper I estimate non-linear impulse response functions for credit card data from 1990 to 2003 to monetary policy shocks. The data suggests that, 1) households in the aggregate are not liquidity-constrained, and 2) credit cards slow the propagation of monetary policy.

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File URL: http://www.usna.edu/EconDept/RePEc/usn/wp/usnawp12.pdf
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Paper provided by United States Naval Academy Department of Economics in its series Departmental Working Papers with number 12.

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Length: 28 pages
Date of creation: Jan 2006
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Handle: RePEc:usn:usnawp:12

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  1. Kenneth N. Kuttner & Patricia C. Mosser, 2002. "The monetary transmission mechanism: some answers and further questions," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 15-26. [Downloadable!]
  2. Jappelli, Tullio, 1990. "Who Is Credit Constrained in the U.S. Economy?," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 219-34, February. [Downloadable!] (restricted)
  3. Jappelli, Tullio & Pischke, Jörn-Steffen & Souleles, Nicholas, 1995. "Testing for Liquidity Constraints in Euler Equations with Complementary Data Sources," CEPR Discussion Papers 1138, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  4. Òscar Jordà, 2005. "Estimation and Inference of Impulse Responses by Local Projections," American Economic Review, American Economic Association, vol. 95(1), pages 161-182, March. [Downloadable!]
  5. Midori Wakabayashi & Charles Yuji Horioka, 2005. "Borrowing Constraints and Consumption Behavior in Japan," NBER Working Papers 11560, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Ludvigson, Sydney, 1998. "The Channel of Monetary Transmission to Demand: Evidence from the Market for Automobile Credit," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(3), pages 365-83, August.
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  7. Brito, Dagobert L & Hartley, Peter R, 1995. "Consumer Rationality and Credit Cards," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 400-433, April. [Downloadable!] (restricted)
  8. Orazio Attanasio & Pinelopi K. Goldberg & Ekaterini Kyriazidou, 2000. "Credit Constraints in the Market for Consumer Durables: Evidence from Micro Data on Car Loans," NBER Working Papers 7694, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. repec:fth:pennfi:69 is not listed on IDEAS
  10. David B. Gross & Nicholas S. Souleles, 2002. "Do Liquidity Constraints And Interest Rates Matter For Consumer Behavior? Evidence From Credit Card Data," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 149-185, February. [Downloadable!] (restricted)
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  11. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," NBER Working Papers 5146, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Demiralp, Selva & Jorda, Oscar, 2004. "The Response of Term Rates to Fed Announcements," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 387-405, June.
  13. Kartik Athreya, 2001. "The growth of unsecured credit : are we better off?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 11-33. [Downloadable!]
  14. Donald Cox & Tullio Japelli, 1993. "The Effect Of Borrowing Constraints On Consumer Liabilities," Boston College Working Papers in Economics 228, Boston College Department of Economics.
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  15. Zeldes, Stephen P, 1989. "Consumption and Liquidity Constraints: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 305-46, April. [Downloadable!] (restricted)
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  16. Sydney Ludvigson, 1999. "Consumption And Credit: A Model Of Time-Varying Liquidity Constraints," The Review of Economics and Statistics, MIT Press, vol. 81(3), pages 434-447, August. [Downloadable!] (restricted)
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  17. Edward Castronova & Paul Hagstrom, 2004. "The Demand for Credit Cards: Evidence from the Survey of Consumer Finances," Economic Inquiry, Oxford University Press, vol. 42(2), pages 304-318, April. [Downloadable!] (restricted)
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  1. Ryan R. Brady, 2006. "Structural Breaks and Consumer Credit: Is Consumption Smoothing Finally a Reality?," Departmental Working Papers 13, United States Naval Academy Department of Economics. [Downloadable!]
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