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The Forest

Faculty Discussion Group

Don’t miss the latest faculty discussion group on Friday, April 20, at noon in Pierson Rooms A and B, where Assistant Professor of Finance Muris Hadzic will present “Liquidity Constraints and Consumption: Evidence from Macro-Prudential Policy in Turkey.” Light lunch will be provided.


Using account-level credit card data from a major Turkish bank, we show the impact of a unique restrictive credit card policy on consumption and debt repayment behavior. The complex policy imposes two types of liquidity constraints for certain credit card holders: progressively higher minimum payments over time and cash advance restrictions. We show that the policy reduces credit card spending and debt, and boosts existing debt repayment. The policy reduces average monthly credit card debt of affected consumers by about TL310 ($187) or 41% two years into policy implementation. Compared to the minimum payment increase, cash advance restriction has a stronger effect in reducing credit card spending and promoting faster debt repayment. Policy announcement also has a sizeable effect in instigating change in credit card usage behavior. Moreover, the policy reduces credit card delinquency after its implementation. These results are consistent with the theory of liquidity constraints and consumption (Carroll and Kimball 2005). We also show that anchoring plays a marginal rule in affecting consumers’ spending and payment behavior after the policy implementation. Our results show that a well-designed credit card policy will likely impose significant liquidity constraints, thereby prompting change in consumers’ spending and debt payment behavior.