Credit Cards and the Floating Rate Channel of Monetary Policy

13 Pages Posted: 11 Jan 2021 Last revised: 13 Jan 2021

Date Written: November 4, 2020

Abstract

I quantify the impact of Federal Funds Rate (FFR) movements on consumers' welfare via the floating, or variable, rate on their credit cards. I first newly document that 96% of card rates adjust to the FFR within 3 months of a change in the latter. Exploiting these rate changes, I construct a model of card use and estimate it using a large national database of U.S. card accounts. The model estimates imply that a hypothetical 25 bp rise in the FFR lowers annual consumers' surplus by 0.24% of personal consumption expenditures ($33.4 billion), and disproportionately more so in lower income areas.

JEL Classification: E52, G28, G51

Suggested Citation

Grodzicki, Daniel, Credit Cards and the Floating Rate Channel of Monetary Policy (November 4, 2020). Available at SSRN: https://ssrn.com/abstract=3725167

Daniel Grodzicki (Contact Author)

Penn State Economics ( email )

524 Kern Graduate Building
University Park, PA 16802-3306
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
16
Abstract Views
187
PlumX Metrics