Household consumption and liquidity constraints: The impact of constraint relaxation.
Item
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Title
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Household consumption and liquidity constraints: The impact of constraint relaxation.
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Identifier
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AAI3283171
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identifier
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3283171
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Creator
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Quinlan, Raymond J.
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Contributor
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Adviser: Thom Thurston
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Date
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2007
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Language
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English
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Publisher
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City University of New York.
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Subject
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Economics, General
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Abstract
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This paper utilizes a rich data set of credit card customers in order to analyze how people respond to an unsolicited granting of credit. The data set consists of tens of thousands of credit card customers that were granted the available credit in December, 1999. Their activity is tracked over the course of the next thirty-three months, until August, 2002. The activity variables that are tracked include new purchases, change in outstanding debt on the offered product as well as for the household debt as a whole, and payment and delinquency behavior. The data set also includes the zip code of residence, estimates of household income based on census tract data, and age.;The study finds that many of the households make heavy use of the new liquidity in contrast to what would have been predicted by the permanent income hypothesis. Consumption for the period greatly exceeded the growth in average household income. Evidence of liquidity constraints is evaluated and the study concludes that there is strong evidence of a liquidity constraint existing. Households that made higher use of new liquidity were more likely to have riskier credit profiles indicating that the current credit granting policies of lenders may constrain the higher risk households disproportionately. The study was able to examine this subset as the data set included the granting of credit to households that would not normally pass credit policy score cutoffs. The payment behavior of these higher risk accounts indicated that their credit risk is still within acceptable risk ranges during the period. The study concludes that there may be a market imperfection of a material amount, given the high proportion of GDP that is accounted for by consumer consumption and the high use of the granted credit by the analyzed group.
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Type
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dissertation
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Source
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PQT Legacy CUNY.xlsx
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degree
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Ph.D.
