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

94 Pages Posted: 26 Feb 2015 Last revised: 21 Oct 2022

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Muris Hadzic

Whitman School of Management, Syracuse University

Changcheng Song

Singapore Management University

Yildiray Yildirim

Zicklin School of Business, Baruch College - The City University of New York

Date Written: October 21, 2022

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 implementation. An increase in minimum payment has a stronger effect than a decrease of similar magnitude. We build a benchmark life-cycle model with soft liquidity constraint to explain the reduction in credit card spending.

Keywords: Liquidity Constraints, Credit Constraints, Anchoring, Consumption, Spending, Debt, Credit Cards, Household Finance, Fiscal Policy

JEL Classification: D12, D14, D91, E21, E51, E62, G21

Suggested Citation

Agarwal, Sumit and Hadzic, Muris and Song, Changcheng and Yildirim, Yildiray, Liquidity Constraints, Consumption, and Debt Repayment: Evidence from Macroprudential Policy in Turkey (October 21, 2022). Available at SSRN: https://ssrn.com/abstract=2569584 or http://dx.doi.org/10.2139/ssrn.2569584

Sumit Agarwal (Contact Author)

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Muris Hadzic

Whitman School of Management, Syracuse University ( email )

721 University Avenue
Syracuse, NY 13244-2130
United States

Changcheng Song

Singapore Management University ( email )

50 Stamford Road
Singapore
Singapore
+6568289610 (Phone)

Yildiray Yildirim

Zicklin School of Business, Baruch College - The City University of New York ( email )

55 Lexington Ave., Box B13-260
New York, NY 10010
United States

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