Document Type
Working Paper
Publication Date
12-20-2020
College/Unit
Chambers College of Business and Economics
Document Number
19-07
Department/Program/Center
Economics
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.
Digital Commons Citation
Fulford, Scott and Schuh, Scott, "Credit Cards, Credit Utilization, and Consumption" (2020). Economics Faculty Working Papers Series. 41.
https://researchrepository.wvu.edu/econ_working-papers/41