Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/202913 
Year of Publication: 
2017
Series/Report no.: 
Working Papers No. 17-14
Publisher: 
Federal Reserve Bank of Boston, Boston, MA
Abstract: 
The revolving credit available to consumers changes substantially over the business cycle, life cycle, and for individuals. We show that debt changes at the same time as credit, so credit utilization is remarkably stable. From ages 20-40, for example, credit card limits grow by more than 700 percent, and yet utilization holds steadily at around 50 percent. We estimate a structural model of life-cycle consumption and credit use in which credit cards can be used for payments, precautionary smoothing, and life-cycle smoothing, uniting their monetary and revolving credit functions. Our estimates predict stable utilization closely matching the individual, life-cycle, and business-cycle relationships between credit and debt. The preference heterogeneity implied by the different uses of credit cards drives our results. The revealed preference that some people with credit cards borrow at high interest, while others do not, suggests that around half the population is living nearly hand to mouth.
Subjects: 
Credit cards
life cycle
consumption
saving
precaution
buffer stock
JEL: 
D14
D15
E21
E27
Document Type: 
Working Paper

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