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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. 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.
    3. Timothy J. Kehoe & David K. Levine, 1993. "Debt-Constrained Asset Markets," Review of Economic Studies, Oxford University Press, vol. 60(4), pages 865-888.
    4. 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.
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    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. Leonardo Martinez & Juan Carlos Hatchondo, 2008. "A model of credit risk without commitment," 2008 Meeting Papers 940, Society for Economic Dynamics.
    2. N. Narajabad, Borghan, 2010. "Information Technology and the Rise of Household Bankruptcy," MPRA Paper 21058, University Library of Munich, Germany.
    3. Xavier Mateos-Planas, 2011. "Consumer default with complete markets," 2011 Meeting Papers 954, Society for Economic Dynamics.
    4. 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.
    5. 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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