Consumption Response to Credit Expansions: Evidence from Experimental Assignment of 45,307 Credit Lines

36 Pages Posted: 22 Mar 2021

See all articles by Deniz Aydin

Deniz Aydin

Washington University in St. Louis - John M. Olin Business School

Date Written: February 2021

Abstract

I design a large-scale field experiment that constructs a randomized credit limit extension isolating selection, anticipation, wealth, and interest rate effects and study the impulse responses on spending, contract choice, and balance sheets. Participants borrow to spend 11 cents on the dollar in the quarter of the limit increase, with a cumulative difference of 28 cents by the third year. The effects extend to those far from the limit, those who had the new limits as available credit, and those with a meaningful buffer of liquid assets. Participants near their limits borrow and spend when limits are relaxed but put off spending and save out of constraints under the counterfactual when limits are tight. The findings provide strong support for a buffer-stock interpretation that emphasizes the importance of precautionary saving.

Keywords: consumption, credit, MPC, precautionary saving, randomized field experiment

JEL Classification: D15, E21, E51, H31

Suggested Citation

Aydin, Deniz, Consumption Response to Credit Expansions: Evidence from Experimental Assignment of 45,307 Credit Lines (February 2021). Available at SSRN: https://ssrn.com/abstract=3794759 or http://dx.doi.org/10.2139/ssrn.3794759

Deniz Aydin (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
St. Louis, MO 63130
United States

HOME PAGE: http://sites.wustl.edu/denizaydin

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

Paper statistics

Downloads
602
Abstract Views
1,377
Rank
85,877
PlumX Metrics