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  • Jose-Victor Rios-Rull

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

  • Xavier Mateos-Planas

    (University of Southampton)

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.

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File URL: https://www.economicdynamics.org/meetpapers/2009/paper_894.pdf
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Paper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 894.

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Date of creation: 2009
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Handle: RePEc:red:sed009:894
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Web page: http://www.EconomicDynamics.org/society.htm
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  1. 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.
  2. 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.
  3. Timothy J Kehoe & David K Levine, 1993. "Debt Constrained Asset Markets," Levine's Working Paper Archive 1276, David K. Levine.
  4. 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.
  5. 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.
  6. Satyajit Chatterjee & Dean Corbae, 2004. "A Competitive Theory of Credit Scoring," 2004 Meeting Papers 823, Society for Economic Dynamics.
  7. Igor Livshits & James MacGee & Michele Tertilt, 2006. "Accounting for the Rise in Consumer Bankruptcies," Discussion Papers 06-001, Stanford Institute for Economic Policy Research.
  8. Makoto Nakajima, 2012. "Business Cycles In The Equilibrium Model Of Labor Market Search And Self‐Insurance," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(2), pages 399-432, 05.
  9. Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & Jose-Victor Rios-Rull, 2007. "A quantitative theory of unsecured consumer credit with risk of default," Working Papers 07-16, Federal Reserve Bank of Philadelphia.
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