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Credit card use after the final mortgage payment: does the magnitude of income shocks matter?

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  • Scholnick, Barry

Abstract

We test the hypothesis that consumption smoothing occurs after large, but not small, expected future income shocks. Even though this hypothesis has often been discussed, formal evidence in support of it is rare. We use individual level, monthly, bank account data to examine how expected income shocks from final mortgage payments impact credit card consumption, and the repayment of credit card debt. Our data allows us to identify the exact magnitude and date of final mortgage payments, and also to exploit the random timing of these expected income shocks across individuals. Our results are consistent with the magnitude hypothesis. JEL Classification: E42, G21

Suggested Citation

  • Scholnick, Barry, 2009. "Credit card use after the final mortgage payment: does the magnitude of income shocks matter?," Working Paper Series 1142, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20091142
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    References listed on IDEAS

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    Cited by:

    1. Iftekhar Hasan & Heiko Schmiedel & Liang Song, 2012. "Returns to Retail Banking and Payments," Journal of Financial Services Research, Springer;Western Finance Association, vol. 41(3), pages 163-195, June.

    More about this item

    Keywords

    credit card; final mortgage payment; income shocks; monthly mortgage account;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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