Credit cards and the floating rate channel of monetary policy

Research output: Contribution to journalArticlepeer-review

Abstract

I quantify the impact of Federal Funds Rate (FFR) movements on consumers’ welfare via the floating, or variable, rate on their credit cards. I first newly document that 96% of card rates adjust to the FFR within 3 months of a change in the latter. Exploiting these rate changes, I construct a model of card use and estimate it using a national database of U.S. card accounts. Model estimates imply that a hypothetical 25 bp rise in the FFR lowers annual consumers’ surplus by 0.23% of personal consumption expenditures ($31.97 billion), and disproportionately more so in lower income areas.

Original languageEnglish (US)
JournalApplied Economics Letters
DOIs
StateAccepted/In press - 2021

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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