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Credit card debt puzzles

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  • Haliassos, Michael
  • Reiter, Michael

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 Center for Financial Studies (CFS) in its series CFS Working Paper Series with number 2005/26.

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Date of creation: 2005
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Handle: RePEc:zbw:cfswop:200526

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Related research

Keywords: Credit Cards; Debt; Self Control; Household Portfolios;

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Cited by:
  1. 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.
  2. Irina A. Telyukova & Randall Wright, 2008. "A Model of Money and Credit, with Application to the Credit Card Debt Puzzle," Review of Economic Studies, Oxford University Press, vol. 75(2), pages 629-647.
  3. 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.
  4. Gene Amromin & Jennifer Huang & Clemens Sialm, 2006. "The Tradeoff Between Mortgage Prepayments and Tax-Deferred Retirement Savings," NBER Working Papers 12502, National Bureau of Economic Research, Inc.
  5. 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.
  6. 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.

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