Liquidity Constraints, Consumption, and Debt Repayment: Evidence from Macroprudential Policy in Turkey

Sumit Agarwal, Muris Hadzic, Changcheng Song, Yildiray Yildirim and Tarun Ramadorai

The Review of Financial Studies, 2023, vol. 36, issue 10, 3953-3998

Abstract: Using account-level credit card data from a large Turkish bank, we study the impact of a unique credit card policy that increases minimum payment on consumption and debt repayment. We show that the policy reduces credit card spending and debt, boosts existing debt repayment, and reduces credit card delinquency. The credit card debt of affected consumers falls on average by 50 two years into the policy’s implementation. An increase in minimum payment has a stronger effect than does a decrease of a similar magnitude. We build a benchmark life cycle model with soft liquidity constraint to explain the reduction in credit card spending.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

JEL-codes: D12 D14 D91 E21 E51 G21 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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