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The use of credit cards among low- and middle-income individuals in Colombia and the channels of monetary policy

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  • Arango, Luis E.
  • Cardona-Sosa, Lina
  • Pedraza-Jiménez, Nataly

Abstract

Data for a retail credit card, which enables customers to finance purchases of semi-durable and non-durable goods, are used to show the way in which monetary policy and other interest rates affect the credit limits, the probability of use, and the value of purchases. This credit card, targeted at low- and middle-income individuals, is held by a quarter of employed labour force in Bogotá. Permanent and transitory incomes play an intuitive role in these three dimensions of the credit card. Credit limits are determined by the intervention interest rate, which supports the presence of the lending channel. The probability of use is determined by the usury interest rate while monthly purchases are affected by the interest rate charged by the financial institution and the usury interest rate, both indicative of the broad credit channel. Interestingly, after considering the customer’s observable characteristics, macroeconomic environment matters, mainly the labour market performance.

Suggested Citation

  • Arango, Luis E. & Cardona-Sosa, Lina & Pedraza-Jiménez, Nataly, 2021. "The use of credit cards among low- and middle-income individuals in Colombia and the channels of monetary policy," Economic Modelling, Elsevier, vol. 94(C), pages 150-169.
  • Handle: RePEc:eee:ecmode:v:94:y:2021:i:c:p:150-169
    DOI: 10.1016/j.econmod.2020.09.018
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    Cited by:

    1. Arango, Luis E. & Cardona-Sosa, Lina, 2023. "Consumer credit in an emerging economy: Demand, supply, and liquidity restrictions," Emerging Markets Review, Elsevier, vol. 54(C).

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    More about this item

    Keywords

    Credit card; Credit limits; Probability of use; Amount of purchases; Monetary policy channels;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E29 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Other
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • L67 - Industrial Organization - - Industry Studies: Manufacturing - - - Other Consumer Nondurables: Clothing, Textiles, Shoes, and Leather Goods; Household Goods; Sports Equipment
    • L68 - Industrial Organization - - Industry Studies: Manufacturing - - - Appliances; Furniture; Other Consumer Durables

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