Review of Financial Studies Vol. 36 No. 10 2023

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

Sumit Agarwal¹; Muris Hadzic²; Changcheng Song³; Yildiray Yildirim⁴

¹ National University of Singapore Finance and Real Estate, , Singapore · ² Lake Forest College , USA · ³ Singapore Management University Lee Kong Chian School of Business, , Singapore · ⁴ Baruch College Zicklin School of Business, , USA

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.

DOI

10.1093/rfs/hhad024

Volume

36

Issue

10

Pages

3953-3998

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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