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Consumer Credit with Over-optimistic Borrowers

Author

Listed:
  • Florian Exler
  • Igor Livshits
  • James MacGee
  • Michèle Tertilt

Abstract

I investigate the impact of contactless credit cards (CTCs) on cash use in Canada, using panel data between 2010 and 2017. I show that ignoring unobserved heterogeneity would lead to overstating the impact of CTCs on cash usage in a linear model. Using finite mixture modelling, I provide evidence of the differential impacts of CTCs on the extensive versus intensive margins of cash usage. I use a two-part model, with an exclusion restriction for better identification, to model both margins separately. I obtain that CTC use negatively influences the intensive margin of cash usage but not its extensive margin. There is no clear evidence of an S-curve pattern in the impact of CTCs on cash usage over the sample period.

Suggested Citation

  • Florian Exler & Igor Livshits & James MacGee & Michèle Tertilt, 2020. "Consumer Credit with Over-optimistic Borrowers," Staff Working Papers 20-57, Bank of Canada.
  • Handle: RePEc:bca:bocawp:20-57
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Consumer Credit With Over-Optimistic Borrowers
      by Christian Zimmermann in NEP-DGE blog on 2020-12-21 19:08:44

    Citations

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    Cited by:

    1. Almut Balleer & Georg Duernecker & Susanne K. Forstner & Johannes Goensch, 2021. "The Effects of Biased Labor Market Expectations on Consumption, Wealth Inequality, and Welfare," CESifo Working Paper Series 9326, CESifo.
    2. Exler, Florian & Hansak, Alexander, 2021. "Naïve Consumers and Financial Mistakes," VfS Annual Conference 2021 (Virtual Conference): Climate Economics 242359, Verein für Socialpolitik / German Economic Association.
    3. Davila, Eduardo & Walther, Ansgar, 2021. "Prudential Policy with Distorted Beliefs," CEPR Discussion Papers 16197, C.E.P.R. Discussion Papers.

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    More about this item

    Keywords

    Credit and credit aggregates; Credit risk management; Financial system regulation and policies;
    All these keywords.

    JEL classification:

    • E49 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Other
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • K35 - Law and Economics - - Other Substantive Areas of Law - - - Personal Bankruptcy Law

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