Credit Cards, Credit Utilization, and Consumption

Scott Fulford and Scott Schuh
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Scott Schuh: West Virginia University

No 19-07, Working Papers from Department of Economics, West Virginia University

Abstract: Credit bureau data show remarkably stable consumer utilization of unsecured debt over the business cycle, life cycle, and individually quarter-to-quarter, despite massive variation in available credit. To explain these new findings, we propose a life-cycle consumption model with heterogeneous preferences, endogenous payment choice, and the option to revolve debt for consumption smoothing. Using diary data to identify payment use, the estimated model matches consumption and credit use at every frequency and suggests that around half the population has an endogenously high marginal propensity to consume. The results suggest understanding credit availability and heterogeneous use may lead to richer counter-cyclical policies.

Keywords: Credit cards; life cycle; consumption; saving; precaution; buffer-stock; payments (search for similar items in EconPapers)
JEL-codes: D14 D15 E21 E27 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2020-12-20
New Economics Papers: this item is included in nep-cwa, nep-dge, nep-mac and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:wvu:wpaper:19-07

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