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The Capitalization of Consumer Financing into Durable Goods Prices

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  • BRONSON ARGYLE
  • TAYLOR NADAULD
  • CHRISTOPHER PALMER
  • RYAN PRATT

Abstract

Using loan‐level data on millions of used‐car transactions across hundreds of lenders, we study the consumer response to exogenous variation in credit terms. Borrowers offered shorter maturity decrease expenditures enough to offset 60% to 90% of the monthly payment increase. Most of this is driven by shifting toward lower‐quality cars, but affected borrowers offset 20% to 30% of a monthly payment shock by negotiating lower prices for equivalent cars. Our results suggest that durable goods prices adjust to reflect credit terms even at the individual level, with one year of additional loan maturity increasing a car's price by 2.8%.

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  • Bronson Argyle & Taylor Nadauld & Christopher Palmer & Ryan Pratt, 2021. "The Capitalization of Consumer Financing into Durable Goods Prices," Journal of Finance, American Finance Association, vol. 76(1), pages 169-210, February.
  • Handle: RePEc:bla:jfinan:v:76:y:2021:i:1:p:169-210
    DOI: 10.1111/jofi.12977
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    Cited by:

    1. Ferrari, Alessandro & Loseto, Marco, 2023. "Liquidity constraints and demand for maturity the case of mortgages," Working Paper Series 2859, European Central Bank.
    2. Olivier Darmouni & Andrew Sutherland, 2021. "Learning about Competitors: Evidence from SME Lending [Monthly payment targeting and the demand for maturity]," Review of Financial Studies, Society for Financial Studies, vol. 34(5), pages 2275-2317.

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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment

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