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Long-Run Price Elasticities of Demand for Credit: Evidence from a Countrywide Field Experiment in Mexico

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  • Zinman, Jonathan
  • Karlan, Dean

Abstract

The long-run price elasticity of demand for credit is a key parameter for intertemporal modeling, policy levers, and lending practice. We use randomized interest rates, offered across 80 regions by Mexico?s largest microlender, to identify a 29-month dollars-borrowed elasticity of -1.9. This elasticity increases from -1.1 in year one to -2.9 in year three. The number of borrowers is also elastic. Credit bureau data does not show evidence of crowd-out. Competitors do not respond by reducing rates, perhaps because Compartamos? profits are unchanged. The results are consistent with multiple equilibria in loan pricing.

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  • Zinman, Jonathan & Karlan, Dean, 2013. "Long-Run Price Elasticities of Demand for Credit: Evidence from a Countrywide Field Experiment in Mexico," CEPR Discussion Papers 9503, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:9503
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    4. Manuela Angelucci & Dean Karlan & Jonathan Zinman, 2013. "Win Some Lose Some? Evidence from a Randomized Microcredit Program Placement Experiment by Compartamos Banco," Working Papers 1026, Economic Growth Center, Yale University.
    5. Orazio P. Attanasio & Guglielmo Weber, 2010. "Consumption and Saving: Models of Intertemporal Allocation and Their Implications for Public Policy," Journal of Economic Literature, American Economic Association, vol. 48(3), pages 693-751, September.
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    7. Dehejia, Rajeev & Montgomery, Heather & Morduch, Jonathan, 2012. "Do interest rates matter? Credit demand in the Dhaka slums," Journal of Development Economics, Elsevier, vol. 97(2), pages 437-449.
    8. Rob Alessie & Stefan Hochguertel & Guglielmo Weber, 2005. "Consumer Credit: Evidence From Italian Micro Data," Journal of the European Economic Association, MIT Press, vol. 3(1), pages 144-178, March.
    9. Manuela Angelucci, Dean Karlan, Jonathan Zinman, 2013. "Win Some Lose Some? Evidence from a Randomized Microcredit Program Placement Experiment by Compartamos Banco-Working Paper 330," Working Papers 330, Center for Global Development.
    10. Dean S. Karlan & Jonathan Zinman, 2008. "Credit Elasticities in Less-Developed Economies: Implications for Microfinance," American Economic Review, American Economic Association, vol. 98(3), pages 1040-1068, June.
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    3. Xiangming Fang & David Jutrsa & Maria Soledad Martinez Peria & Mr. Andrea F Presbitero & Mr. Lev Ratnovski & Mr. Felix J Vardy, 2018. "The Effects of Higher Bank Capital Requirements on Credit in Peru," IMF Working Papers 2018/222, International Monetary Fund.
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    9. Abhijit Banerjee & Esther Duflo & Richard Hornbeck, 2018. "How Much do Existing Borrowers Value Microfinance? Evidence from an Experiment on Bundling Microcredit and Insurance," Economica, London School of Economics and Political Science, vol. 85(340), pages 671-700, October.
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    13. Hisaki KONO & Abu SHONCHOY & Kazushi TAKAHASHI, 2023. "At the Right Time:Eliminating Mismatch between Cash Flow and Credit Flow in Microcredit," Discussion papers e-22-013, Graduate School of Economics , Kyoto University.
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    More about this item

    Keywords

    Interest rate elasticities; Interest rate policy; Interest rates; Microcredit;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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