An Empirical Study of the Credit Market with Unobserved Consumer Typers

27 Pages Posted: 19 Mar 2008 Last revised: 4 Apr 2008

See all articles by Li Gan

Li Gan

Texas A&M University - Department of Economics; National Bureau of Economic Research (NBER)

Roberto Mosquera

Universidad de las Americas - Department of Economics

Date Written: March 2008

Abstract

This paper proposes an econometric model to identify unobserved consumer types in the credit market. Consumers choose different amounts of loan because of differences in their time or risk preferences (types). Thus, the unconditional probability of default is modeled using a mixture density combining a type-conditioning default variable with a type-determining random variable. The model is estimated using individual-level consumer credit card information. The parameter estimates and statistical tests support this kind of specification. Furthermore, the model produces better out-of-sample predictions on the probability of default than traditional models; hence, it provides evidence of the existence of types in the consumer credit market.

Suggested Citation

Gan, Li and Mosquera, Roberto, An Empirical Study of the Credit Market with Unobserved Consumer Typers (March 2008). NBER Working Paper No. w13873. Available at SSRN: https://ssrn.com/abstract=1106599

Li Gan (Contact Author)

Texas A&M University - Department of Economics ( email )

5201 University Blvd.
College Station, TX 77843-4228
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Roberto Mosquera

Universidad de las Americas - Department of Economics ( email )

De los Granados y De los Colimes, Esquina
Quito, Pichincha 170102
Ecuador

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