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Credit Lines

Author

Listed:
  • Jose-Victor Rios-Rull

    (University of Minnesota, FRB Mpls, CAERP, NBER)

  • Xavier Mateos-Planas

    (University of Southampton)

Abstract

This paper develops a new quantitative theory of long-term unsecured credit contracts. Households can default and can switch credit lines. Banks can change the credit limit at any time, but must commit to the interest rate or not depending on the regulatory setting. Without commitment, the distribution of households over interest rates, credit limits and wealth matches observed patterns. We study the new regulatory rules in the U.S.credit card market which require a stronger commitment from banks not to raise interest rates discretionally. This results in tighter limits but lower interest rates, reduced indebtedness and lower default.

Suggested Citation

  • Jose-Victor Rios-Rull & Xavier Mateos-Planas, 2009. "Credit Lines," 2009 Meeting Papers 894, Society for Economic Dynamics.
  • Handle: RePEc:red:sed009:894
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    References listed on IDEAS

    as
    1. Marcus Hagedorn & Iourii Manovskii, 2008. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," American Economic Review, American Economic Association, vol. 98(4), pages 1692-1706, September.
    2. Athreya, Kartik B. & Simpson, Nicole B., 2006. "Unsecured debt with public insurance: From bad to worse," Journal of Monetary Economics, Elsevier, vol. 53(4), pages 797-825, May.
    3. Diaz, Antonia & Pijoan-Mas, Josep & Rios-Rull, Jose-Victor, 2003. "Precautionary savings and wealth distribution under habit formation preferences," Journal of Monetary Economics, Elsevier, vol. 50(6), pages 1257-1291, September.
    4. Igor Livshits & James MacGee & Michèle Tertilt, 2010. "Accounting for the Rise in Consumer Bankruptcies," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 165-193, April.
    5. Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & José-Víctor Ríos-Rull, 2007. "A Quantitative Theory of Unsecured Consumer Credit with Risk of Default," Econometrica, Econometric Society, vol. 75(6), pages 1525-1589, November.
    6. Costain, James S. & Reiter, Michael, 2008. "Business cycles, unemployment insurance, and the calibration of matching models," Journal of Economic Dynamics and Control, Elsevier, vol. 32(4), pages 1120-1155, April.
    7. Satyajit Chatterjee & Dean Corbae, 2004. "A Competitive Theory of Credit Scoring," 2004 Meeting Papers 823, Society for Economic Dynamics.
    8. Timothy J. Kehoe & David K. Levine, 1993. "Debt-Constrained Asset Markets," Review of Economic Studies, Oxford University Press, vol. 60(4), pages 865-888.
    9. Diaz, Antonia & Pijoan-Mas, Josep & Rios-Rull, Jose-Victor, 2003. "Precautionary savings and wealth distribution under habit formation preferences," Journal of Monetary Economics, Elsevier, vol. 50(6), pages 1257-1291, September.
    10. Mateos-Planas, Xavier, 2009. "A model of credit limits and bankruptcy with applications to welfare and indebtedness," Discussion Paper Series In Economics And Econometrics 0910, Economics Division, School of Social Sciences, University of Southampton.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Game Thoery and Macroeconomics
      by paragwaknis in Musings of the Sorts on 2012-07-16 23:42:41

    Citations

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    Cited by:

    1. Xavier Mateos-Planas & Giulio Seccia, 2013. "Consumer Default with Complete Markets: Default-based Pricing and Finite Punishment," Working Papers 711, Queen Mary University of London, School of Economics and Finance.
    2. J. Carter Braxton & Gordon Phillips & Kyle Herkenhoff, 2018. "Can the Unemployed Borrow? Implications for Public Insurance," 2018 Meeting Papers 564, Society for Economic Dynamics.
    3. Raveendranathan, Gajendran, 2020. "Revolving credit lines and targeted search," Journal of Economic Dynamics and Control, Elsevier, vol. 118(C).
    4. Leonardo Martinez & Juan Carlos Hatchondo, 2008. "A model of credit risk without commitment," 2008 Meeting Papers 940, Society for Economic Dynamics.
    5. N. Narajabad, Borghan, 2010. "Information Technology and the Rise of Household Bankruptcy," MPRA Paper 21058, University Library of Munich, Germany.
    6. Mateos-Planas, Xavier, 2013. "Credit limits and bankruptcy," Economics Letters, Elsevier, vol. 121(3), pages 469-472.
    7. Xavier Mateos-Planas, 2011. "Consumer default with complete markets," 2011 Meeting Papers 954, Society for Economic Dynamics.
    8. Bergerès, Anne-Sophie & d'Astous, Philippe & Dionne, Georges, 2015. "Is there any dependence between consumer credit line utilization and default probability on a term loan? Evidence from bank-customer data," Journal of Empirical Finance, Elsevier, vol. 33(C), pages 276-286.
    9. Xavier Mateos-Planas & David Benjamin, 2012. "Formal vs. Informal Default in Consumer Credit," 2012 Meeting Papers 144, Society for Economic Dynamics.

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