A Model of Money and Credit, with Application to the Credit Card Debt Puzzle
Many individuals simultaneously have significant credit card debt and money in the bank. The "credit card debt puzzle "is as follows: given high interest rates on credit cards and low rates on bank accounts, why not pay down debt? While some economists go to elaborate lengths to explain this, we argue it is a special case of the "rate of return dominance puzzle "from monetary economics. We extend standard monetary theory to incorporate consumer debt, which is interesting in its own right since developing models where money and credit coexist is a long-standing challenge. Our model is quite tractable-for example, it readily yields nice existence and characterization results-and helps put into context recent discussions of consumer debt. Copyright 2008 The Review of Economic Studies Limited.
Year of publication: |
2008
|
---|---|
Authors: | TELYUKOVA, IRINA A ; WRIGHT, RANDALL |
Published in: |
Review of Economic Studies. - Wiley Blackwell, ISSN 0034-6527. - Vol. 75.2008, 2, p. 629-647
|
Publisher: |
Wiley Blackwell |
Saved in:
freely available
Saved in favorites
Similar items by person
-
DIRECTED SEARCH OVER THE LIFE CYCLE
Menzio, Guido, (2012)
-
A uniqueness proof for monetary steady state
Wright, Randall D., (2010)
-
On the multiplicity of monetary equilibria : Green-Zhou meets Lagos-Wright
Jean, Kasie, (2010)
- More ...