Liquidity Constraints, Consumption, and Debt Repayment: Evidence from Macroprudential Policy in Turkey
94 Pages Posted: 26 Feb 2015 Last revised: 21 Oct 2022
Date Written: October 21, 2022
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: Suggested Citation