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Field
Trial Title
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Before
Marginal propensity to consume out of liquidity
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After
Consumption Response to Credit Expansions
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Field
Trial Status
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Before
on_going
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After
completed
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Field
Abstract
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Before
This experiment uses exogenous variation in borrowing capacity to test competing models of inter temporal consumption behavior. I estimate the marginal propensity to consume (MPC) out of liquidity, the debt response to a change in borrowing capacity, using changes in credit card limits in a randomized controlled trial. I analyze the magnitude, duration and the heterogeneity of the MPC, as well as where the additional liquidity is spent. I test apart theories that predict a high MPC, such as myopia or liquidity constraints/precautionary savings.
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After
This paper reports the results of a large-scale field experiment to study how personal consumption expenditures respond to credit shocks. I design a controlled trial implemented at a large European retail bank in Turkey that constructs a randomized credit limit increase, on average, $1,600, or 145% of average monthly income. The intervention deliberately and temporarily pauses the internal underwriting process for a randomly selected subset of 45,307 customers preapproved for a lender-initiated credit limit increase, creating a counterfactual withheld from receiving the limit increases for nine months. I then use the experimental shock in conjunction with rich administrative data on spending, contract choice, and balance sheets to track the impulse responses and estimate average and heterogeneous treatment effects—marginal propensities to borrow and spend—by comparing cardholders who receive the credit line extension at different times.
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Field
Trial Start Date
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Before
July 15, 2014
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After
June 01, 2014
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Field
Trial End Date
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Before
September 01, 2016
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After
December 31, 2017
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Field
JEL Code(s)
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Before
C93, D12, D14, D91, E21, E44, E51, G21
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After
D15, E21, E51, H31
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Field
Last Published
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Before
February 02, 2015 02:57 PM
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After
February 21, 2021 11:47 AM
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Field
Study Withdrawn
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Before
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After
No
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Field
Intervention Completion Date
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Before
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After
December 31, 2017
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Field
Data Collection Complete
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Before
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After
Yes
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Field
Final Sample Size: Number of Clusters (Unit of Randomization)
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Before
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After
45,307 individuals
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Field
Was attrition correlated with treatment status?
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Before
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After
No
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Field
Data Collection Completion Date
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Before
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After
December 31, 2017
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Field
Is data available for public use?
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Before
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After
No
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Field
Intervention (Public)
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Before
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After
This paper reports the results of a large-scale field experiment to study how personal consumption expenditures respond to credit shocks. I design a controlled trial implemented at a large European retail bank in Turkey that constructs a randomized credit limit increase, on average, $1,600, or 145% of average monthly income. The intervention deliberately and temporarily pauses the internal underwriting process for a randomly selected subset of 45,307 customers preapproved for a lender-initiated credit limit increase, creating a counterfactual withheld from receiving the limit increases for nine months. I then use the experimental shock in conjunction with rich administrative data on spending, contract choice, and balance sheets to track the impulse responses and estimate average and heterogeneous treatment effects—marginal propensities to borrow and spend—by comparing cardholders who receive the credit line extension at different times.
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Field
Intervention End Date
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Before
September 01, 2016
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After
December 31, 2017
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Field
Primary Outcomes (End Points)
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Before
The main outcome variable of interest is the response of credit card debt to a change in credit card limits. Credit card limit consists of revolving credit card balances, and balances in installments. Secondarily, I am interested in the consumption response in different sectors and other balance sheet effects, such as savings accounts.
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After
spending, contract choice, and balance sheets
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Field
Experimental Design (Public)
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Before
The assignment of credit line is done in three steps. First, the credit sales group pre-selects customers according to a set of profitability criteria. These criteria include the expected value added from limit increase, as well as macro prudential criteria imposed by the banking regulation authority preventing line increases, such as having pre-existing unpaid balances exceed half the card limit. The pre-selected individuals are then filtered by the bank’s risk group, according to a set of risk criteria. Finally, the remaining customers are pushed into the central bank’s credit limit clearing system to check if they are eligible for a credit limit extension, i.e. if their current limit is below four times their income. The randomization is done after the final step, therefore the control group consists of individuals that pass all criteria for being assigned an increased credit limit, but are not.
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After
Assignment of subjects to the control group is done after the customers have been preapproved for a limit extension but before the limits are pushed. Participants are first stratified into nonoverlapping and exhaustive bins with respect to their end-of-billing-cycle balances over limits. A random subsample is then drawn from each bin using a random number generator, and these participants are assigned to the treatment group. The treatment group is then pushed downstream in the underwriting process for limit increases. The control group is withheld from lender-initiated credit line increases for 9 months starting in September 2014 by altering the decision rule governing automatic underwriting.
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Randomization Method
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Before
Randomization is done in STATA.
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After
STATA
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Planned Number of Clusters
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Before
54524 individuals
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After
45,307 individuals
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Field
Planned Number of Observations
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Before
54524 individuals
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After
45,307 individuals
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Field
Sample size (or number of clusters) by treatment arms
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Before
13438 control, 13416 treatment, 27670 treatment (undersampled)
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After
12,683 control, 32,624 treatment
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Field
Additional Keyword(s)
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Before
consumption, debt, borrowing constraints, precautionary saving, household finance, permanent income hypothesis, field experiment
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After
consumption, credit, MPC, precautionary savings
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Intervention (Hidden)
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Before
I randomly assign credit card limits to a subset of 50 thousand individuals.
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After
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Field
Public locations
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Before
No
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After
Yes
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