Credit Cards, Credit Utilization, and Consumption

Credit bureau data show remarkably stable consumer utilization of unsecured debt over the business cycle, life cycle, and individually quarter-to-quarter, despite massive variation in available credit. To explain these new findings, we propose a life-cycle consumption model with heterogeneous preferences, endogenous payment choice, and the option to revolve debt for consumption smoothing. Using diary data to identify payment use, the estimated model matches consumption and credit use at every frequency and suggests that around half the population has an endogenously high marginal propensity to consume. The results suggest understanding credit availability and heterogeneous use may lead to richer counter-cyclical policies

Revolving versus Convenience Use of Credit Cards: Evidence from U.S. Credit Bureau Data

Credit card payments and revolving debt are important for consumer theory but a key data source — credit bureau records — does not distinguish between current charges and revolving debt from the previous month. We develop a theory-based econometric methodology informed by survey evidence to estimate the likelihood a consumer is revolving each quarter. We validate our approach using a new survey linked to credit bureau data. For likely revolvers: (1) 100 percent of an increase in credit becomes an increase in debt eventually; (2) credit limit changes are half as salient as debt changes; and (3) revolving status is extremely persistent

This Is ``What\u27s in Your Wallet\u27\u27 ... and Here\u27s How You Use It

Consumer wallets have more means of payment yet cash still is used most. We develop a dynamic structural model blending cash inventory management and payment instrument choice. For each expenditure, consumers endogenously pay with cash, debit card, or credit card with an option to withdraw cash beforehand. The model is estimated with transaction- level data from a daily consumer payment diary and reveals that utility from payment services exceed cash management costs. For payment card owners, optimal cash holdings are about $50 and jointly determined with the share of cash payments. Eliminating either cash or payment cards reduces consumer welfare significantly

Are West Virginia Banks Unique?

Many factors contribute to weak economic growth in Appalachia, but little research has examined the role of banking heterogeneity and efficiency across states. This paper documents how West Virginia (WV) banks\u27 financial behavior differs from other U.S. banks and shows these differences cannot be explained fully by the composition of banks in the state. Despite experiencing faster banking consolidation, West Virginia still has more and smaller banks that are less efficient and profitable. WV banks\u27 customers and managers heavily favor liabilities (time deposits) and assets (real estate loans) with longer maturity and lower risk and returns. Although shares of time deposits and real estate loans are positively correlated across states in part due to lower interest risk, other factors are needed to fully explain banks\u27 financial behavior across states and the connections to the real economy. Heterogeneity in the risk aversion of banks\u27 customers and managers is one possible explanation

Costs and Benefits of Building Faster Payment Systems: The UK Experience

: A number of countries have implemented faster payment services that allow consumers and businesses to rapidly transfer money between bank accounts. These services compete with slower, existing payment services. In 2008, the United Kingdom implemented its Faster Payments Service (FPS) at a cost of less than ₤200 million (.014 percent of U.K. GDP, or $307 million) spread over seven years, plus investment costs borne by each participating bank to connect to the FPS. This paper examines the economic cost-benefit analysis underlying the U.K. FPS investment decision and describes the subsequent diffusion and use of FPS through 2014

Job Creation, Job Destruction, and International Competition

The authors present a picture of how the effects of international trade on employment in U.S. manufacturing industries vary widely. They explore the labor-market dynamics and adjustment costs associated with international factors, particularly the way fluctuations in exchange rates, overseas economic activity, and the altering of trade restrictions contribute to churning-the simultaneous job creation among some firms and job destruction among others.https://research.upjohn.org/up_press/1049/thumbnail.jp

Monetary policy and the role of inventory investment

In this paper, we develop a dynamic stochastic general equilibrium model (DSGE) with sticky prices and inventory investment to explore the relationship between inventories and monetary policy. We use the traditional inventory literature as a basis to motivate this extension of the benchmark model and propose inventories as a factor of production. Within this setting, we test the empirical results in Irvine and Schuh (2005), who find that, since the mid-80s, monetary policy changed its target towards the inventory component of GDP. We explore this idea in our theoretical model and conclude through simulations that this is a plausible complementary explanation for the reduction in output volatility that was observed during the Great Moderation period

Network design for mesoscale inversions of CO2 sources and sinks

International audienceRecent instrumental deployments of regional observation networks of atmospheric CO2 mixing ratios have been used to constrain carbon sources and sinks using inversion methodologies. In this study, we performed sensitivity experiments using observation sites from the Mid Continent Intensive experiment to evaluate the required spatial density and locations of CO2 concentration towers based on flux corrections and error reduction analysis. In addition, we investigated the impact of prior flux error structures with different correlation lengths and biome information. We show here that, while the regional carbon balance converged to similar annual estimates using only two concentration towers over the region, additional sites were necessary to retrieve the spatial flux distribution of our reference case (using the entire network of eight towers). Local flux corrections required the presence of observation sites in their vicinity, suggesting that each tower was only able to retrieve major corrections within a hundred of kilometres around, despite the introduction of spatial correlation lengths (~100 to 300 km) in the prior flux errors. We then quantified and evaluated the impact of the spatial correlations in the prior flux errors by estimating the improvement in the CO2 model-data mismatch of the towers not included in the inversion. The overall gain across the domain increased with the correlation length, up to 300 km, including both biome-related and non-biome-related structures. However, the spatial variability at smaller scales was not improved. We conclude that the placement of observation towers around major sources and sinks is critical for regional-scale inversions in order to obtain reliable flux distributions in space. Sparser networks seem sufficient to assess the overall regional carbon budget with the support of flux error correlations, indicating that regional signals can be recovered using hourly mixing ratios. However, the smaller spatial structures in the posterior fluxes are highly constrained by assumed prior flux error correlation lengths, with no significant improvement at only a few hundreds of kilometres away from the observation sites