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Consumption Response to Credit Expansions: Evidence from Experimental Assignment of 45,307 Credit Lines

Deniz Aydin

EconStor Preprints from ZBW - Leibniz Information Centre for Economics

Abstract: I design a large-scale field experiment that constructs a randomized credit limit extension isolating selection, anticipation, wealth, and interest rate effects and study the impulse responses on spending, contract choice, and balance sheets. Participants borrow to spend 11 cents on the dollar in the quarter of the limit increase, with a cumulative difference of 28 cents by the third year. The effects extend to those far from the limit, those who had the new limits as available credit, and those with a meaningful buffer of liquid assets. Participants near their limits borrow and spend when limits are relaxed but put off spending and save out of constraints under the counterfactual when limits are tight. The findings provide strong support for a buffer-stock interpretation that emphasizes the importance of precautionary saving.

Keywords: consumption; credit; MPC; randomized field experiment; precautionary saving (search for similar items in EconPapers)
JEL-codes: D15 E21 E51 H31 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-exp and nep-mac
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