Revolving credit lines and targeted search

Raveendranathan, Gajendran

doi:10.1016/j.jedc.2020.103964

Cited by 8 publications

(13 citation statements)

References 26 publications

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“…The higher default rate leads to higher spreads for low-type individuals and makes them less profitable to lenders (Figure 15, Panels (b) and (c)). This pattern of lower limits and higher interest rates among low earning individuals is consistent with SCF data, as explored in Raveendranathan (2019).…”

Section: Duopoly To 2016 Oligopolysupporting

confidence: 88%

“…Our paper relates to theoretic and quantitative models of credit lines (Drozd and Nosal (2008), Mateos-Planas and Seccia (2006), Mateos-Planas and Seccia (2013), Drozd and Serrano-Padial (2013), Drozd and Serrano-Padial (2017), Raveendranathan (2019), and Braxton, Herkenhoff, and Phillips (2018)). Drozd and Nosal (2008), Raveendranathan (2019), and Braxton et al (2018) have incorporated long-term credit lines into models with imperfect competition (via search and bargaining) in the credit market.…”

Section: Introductionmentioning

confidence: 99%

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Who Bears the Welfare Costs of Monopoly? The Case of the Credit Card Industry

Herkenhoff

Raveendranathan

2019

SSRN Journal

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How are the welfare costs from monopoly distributed across U.S. households? We answer this question for the U.S. credit card industry, which is highly concentrated, charges interest rates that are 3.4 to 8.8 percentage points above perfectly competitive pricing, and has repeatedly lost antitrust lawsuits. We depart from existing competitive models by integrating oligopolistic lenders into a heterogeneous agent, defaultable debt framework. Our model accounts for 20 to 50 percent of the spreads observed in the data. Welfare gains from competitive reforms in the 1970s are equivalent to a one-time transfer worth between 0.24 and 1.66 percent of GDP. Along the transition path, 93 percent of individuals are better off. Poor households benefit from increased consumption smoothing, while rich households benefit from higher general equilibrium interest rates on savings. Transitioning from 1970 to 2016 levels of competition yields welfare gains equivalent to a one-time transfer worth between 1.87 and 3.20 percent of GDP. Lastly, homogeneous interest rate caps in 2016 deliver limited welfare gains.

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Section: Duopoly To 2016 Oligopolysupporting

confidence: 88%

Section: Introductionmentioning

confidence: 99%

Who Bears the Welfare Costs of Monopoly? The Case of the Credit Card Industry

Herkenhoff

Raveendranathan

2019

SSRN Journal

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“…Our model economy extends Mateos-Planas and Ríos-Rull (2013) and Raveendranathan (2020) to analyze the policy discussed above. Novel features in our model are on-thecredit-search and credit limit increases.…”

Section: Modelmentioning

confidence: 99%

“…Our model of revolving credit lines with a search friction in the credit card market builds on Mateos-Planas and Ríos-Rull (2013) and Raveendranathan (2020). In these papers, credit card contracts are long-term defaultable credit lines specified by a credit limit and interest rate.…”

Section: Introductionmentioning

confidence: 99%

The Unprecedented Fall in U.S. Revolving Credit

Raveendranathan

Stefanidis²

2020

SSRN Journal

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Revolving credit in the U.S. declined drastically in the last decade after several years of upward trending growth. We show that the Ability to Pay provision of the Credit CARD Act of 2009, which places restrictions on credit card limits, accounts for this decline. Extending a model of revolving credit to analyze this policy, we account for changes in credit statistics by income and age. Although the goal was consumer protection, the policy has led to welfare losses. Even consumers with time inconsistent preferences who could benefit from tighter credit constraints are worse off. An alternative policy considered by policymakers -an interest rate cap -improves welfare.

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“…orAlvarez and Jermann (2000), there is a limit on banks'willingness to lend due to enforcement costs. SeeRaveendranathan (2020) for a model of revolving credit lines where a credit contract speci…es an interest rate and credit limit.…”

mentioning

confidence: 99%

Lending Relationships and Optimal Monetary Policy

Bethune

Rocheteau

Wong

et al. 2020

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We construct and calibrate a monetary model of corporate …nance with endogenous formation of lending relationships. The equilibrium features money demands by …rms that depend on their access to credit and a pecking order of …nancing means. We describe the mechanism through which monetary policy a¤ects the creation of relationships and …rms'incentives to use internal or external …nance. We study optimal monetary policy following an unanticipated destruction of relationships under di¤erent commitment assumptions. The Ramsey solution uses forward guidance to expedite creation of new relationships by committing to raise the user cost of cash gradually above its long-run value. Absent commitment, the user cost is kept low, delaying recovery.

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Revolving credit lines and targeted search

Cited by 8 publications

References 26 publications

Who Bears the Welfare Costs of Monopoly? The Case of the Credit Card Industry

Who Bears the Welfare Costs of Monopoly? The Case of the Credit Card Industry

The Unprecedented Fall in U.S. Revolving Credit

Lending Relationships and Optimal Monetary Policy

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