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

Author

Listed:
  • Sumit Agarwal
  • Muris Hadzic
  • Changcheng Song
  • Yildiray Yildirim
  • Tarun Ramadorai

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’s implementation. An increase in minimum payment has a stronger effect than does a decrease of a similar magnitude. We build a benchmark life cycle model with soft liquidity constraint to explain the reduction in credit card spending.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Sumit Agarwal & Muris Hadzic & Changcheng Song & Yildiray Yildirim & Tarun Ramadorai, 2023. "Liquidity Constraints, Consumption, and Debt Repayment: Evidence from Macroprudential Policy in Turkey," The Review of Financial Studies, Society for Financial Studies, vol. 36(10), pages 3953-3998.
    • Handle: RePEc:oup:rfinst:v:36:y:2023:i:10:p:3953-3998.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhad024
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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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