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How important is variability in consumer credit limits?

Listed author(s):
  • Fulford, Scott L.

Using a large panel this paper first demonstrates that individuals gain and lose access to credit frequently. The estimated credit limit volatility is larger than most estimates of income volatility and varies over the business cycle. Within a model, variable credit limits create a reason for households to hold both high interest debts and low interest savings at the same time. Using the estimated credit volatility, the model explains why around one third of American households engage in this credit card puzzle. The approach also offers an important new channel through which financial system uncertainty can affect household decisions.

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File URL: http://www.sciencedirect.com/science/article/pii/S0304393215000057
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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 72 (2015)
Issue (Month): C ()
Pages: 42-63

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Handle: RePEc:eee:moneco:v:72:y:2015:i:c:p:42-63
DOI: 10.1016/j.jmoneco.2015.01.002
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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