Do Liquidity Constraints and Interest Rates Matter for Consumer Behavior? Evidence from Credit Card Data
Abstract
This paper utilizes a unique data set of credit card accounts to analyze how people respond to credit supply. Increases in credit limits generate an immediate and significant rise in debt, counter to the Permanent-Income Hypothesis. The “MPC out of liquidity” is largest for people starting near their limit, consistent with binding liquidity constraints. However, the MPC is significant even for people starting well below their limit, consistent with precautionary models. Nonetheless, there are other results that conventional models cannot easily explain, for example, why so many people are borrowing on their credit cards, and simultaneously holding low yielding assets. The long-run elasticity of debt to the interest rate is approximately -1.3, less than half of which represents balance-shifting across cards.
Integrity signals
Registry
Cites
Statistics
Claims the paper makes
Claims other papers make about this one
Each is checked against this paper’s own text: does it say what the citing paper says it does?
Gross and Souleles (2002) and Aydin (2022) find marginal propensities to consume of around 10-15%.
“Gross and Souleles (2002) and Aydin (2022) use observational and experimental variation in credit limits on existing credit cards and find marginal propensities to consume of around 10-15%.”
From Buy Now, Pay Later Credit: User Characteristics and Effects on Spending Patterns (2022) · cites this paper as Gross and Souleles (2002)
Cited by
Sorted by citations
Financial Literacy, Financial Education, and Economic Outcomes
Hastings, J. S., Madrian, B. C., & Skimmyhorn, W. L. (2013) · Annual Review of Economics · doi:10.1146/annurev-economics-082312-125807 · Cited by 1,041 · see citing works
Constrained after college: Student loans and early-career occupational choices
Rothstein, J., & Rouse, C. E. (2011) · Journal of Public Economics · doi:10.1016/j.jpubeco.2010.09.015 · Cited by 506 · see citing works
Household Leverage and the Recession of 2007–09
Mian, A., & Sufi, A. (2010) · IMF Economic Review · doi:10.1057/imfer.2010.2 · Cited by 404 · see citing works
Inequality, stock market participation, and the equity premium
Favilukis, J. (2013) · Journal of Financial Economics · doi:10.1016/j.jfineco.2012.10.008 · Cited by 156 · see citing works
Jariyapan, P., Mattayaphutron, S., Gillani, S. N., & Shafique, O. (2022) · Frontiers in Psychology · doi:10.3389/fpsyg.2021.814087 · Cited by 102 · see citing works
Explaining intergenerational mobility: The role of fertility and family transfers
Daruich, D., & Kozlowski, J. (2020) · Review of Economic Dynamics · doi:10.1016/j.red.2019.10.002 · Cited by 39 · see citing works
Buy Now, Pay Later Credit: User Characteristics and Effects on Spending Patterns
Di Maggio, M., Katz, J., & Williams, E. (2022) · Social Science Research Network · doi:10.2139/ssrn.4198320 · Cited by 15 · see citing works
- Authors
- Gross, D. B., & Souleles, N. S.
- Affiliations
- National Bureau of Economic Research (US)
- Venue
- The Quarterly Journal of Economics
- Publisher
- Oxford University Press (OUP)
- Published
- 2002-02-01
- Volume
- 117
- Issue
- 1
- Pages
- 149-185
- ISSN
- 0033-5533 (ISSN-L)
- 1531-4650
- OpenAlex
- W3121687806
- Cited by
- 867
- References
- 0
- Citations by year
- 2026: 31 · 2025: 46 · 2024: 69 · 2023: 33 · 2022: 46 · 2021: 44 · 2020: 42 · 2019: 35 · 2018: 33 · 2017: 50 · 2016: 26 · 2015: 44 · 2014: 36 · 2013: 34 · 2012: 41
- FWCI
- 71.06
- Type
- journal article
- Language
- en
- Open access
- closed
- Locations
- The Quarterly Journal of Economics (publishedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- Topics
- Social Sciences › Business, Management and Accounting › Accounting › Financial Literacy, Pension, Retirement Analysis
- Social Sciences › Economics, Econometrics and Finance › General Economics, Econometrics and Finance › Monetary Policy and Economic Impact
- Social Sciences › Economics, Econometrics and Finance › Finance › Banking stability, regulation, efficiency
- Keywords
- liquidity constraints, credit card debt, credit limits, consumer borrowing, marginal propensity to consume, precautionary saving, permanent income hypothesis, interest rates
About these checks
Registry, retraction, Cites and statistics results are computed, not judged, with one exception: a printed reference that no index lists is read once by a model before it counts as a citation error. Claims are extracted by a model and kept only when their quote appears verbatim in the text; each cited source is then checked, with a model’s help, for whether it says what the claim relies on. Those verdicts can be wrong — read the claim’s quote and the cited source before relying on one.
Statistics and arithmetic are recomputed, not judged.
Confidence bands are shown only for fields calibrated on our annotated test set. None is calibrated yet, so no band is shown.
What counts as a claim ›How we measure confidence ›How we check this ›
Are you an author, or do you see a problem with this page? Request a review
