Journal Article

A Model of Money and Credit, with Application to the Credit Card Debt Puzzle

Irina A. Telyukova and Randall Wright

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 75, issue 2, pages 629-647
Published in print April 2008 | ISSN: 0034-6527
Published online April 2008 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/j.1467-937X.2008.00487.x
A Model of Money and Credit, with Application to the Credit Card Debt Puzzle

More Like This

Show all results sharing these subjects:

  • Household Behaviour and Family Economics
  • Macroeconomics: Consumption, Saving, Production, Employment, and Investment

GO

Show Summary Details

Preview

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.

Keywords: D14; E21

Journal Article.  10506 words.  Illustrated.

Subjects: Household Behaviour and Family Economics ; Macroeconomics: Consumption, Saving, Production, Employment, and Investment

Full text: subscription required

How to subscribe Recommend to my Librarian

Users without a subscription are not able to see the full content. Please, subscribe or login to access all content.