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Credit cards and the floating rate channel of monetary policy

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  • Daniel Grodzicki

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 national database of U.S. card accounts. Model estimates imply that a hypothetical 25 bp rise in the FFR lowers annual consumers’ surplus by 0.23% of personal consumption expenditures ($31.97 billion), and disproportionately more so in lower income areas.

Suggested Citation

  • Daniel Grodzicki, 2023. "Credit cards and the floating rate channel of monetary policy," Applied Economics Letters, Taylor & Francis Journals, vol. 30(3), pages 249-254, February.
    • Handle: RePEc:taf:apeclt:v:30:y:2023:i:3:p:249-254
    DOI: 10.1080/13504851.2021.1983130
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