Contract Terms, Employment Shocks, and Default in Credit Cards / Sara G. Castellanos, Diego Jiménez Hernández, Aprajit Mahajan, Eduardo Alcaraz Prous, Enrique Seira.

Format:

Book

Author/Creator:

Castellanos, Sara G.

Contributor:

National Bureau of Economic Research.

Jiménez Hernández, Diego.

Mahajan, Aprajit.

Alcaraz Prous, Eduardo.

Seira, Enrique.

Series:

Working Paper Series (National Bureau of Economic Research) no. w24849.

NBER working paper series no. w24849

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2018.

Summary:

Credit card borrowing is an increasingly common way for first-time borrowers to access formal sector credit. We study new borrower behavior by combining detailed card-level data for a product that accounted for 15% of all first-time formal loans in Mexico, individual-level employment histories, and a large-scale randomized experiment. We find that although default rates are high, they are relatively unresponsive to large variations in interest rates and minimum payments; unemployment shocks have much larger effects on default (about two to seven times larger). An implication is that social protection policies aimed at moderating labor market shocks may be more effective at limiting credit market default than regulation of contract terms among new borrowers.

Notes:

Print version record

July 2018.