NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Capitalization of Consumer Financing into Durable Goods Prices

Bronson Argyle, Taylor D. Nadauld, Christopher Palmer, Ryan D. Pratt

NBER Working Paper No. 24699
Issued in June 2018
NBER Program(s):Corporate Finance, Economic Fluctuations and Growth, Monetary Economics, Public Economics

A central question in the study of business cycles and credit is the relationship between asset prices and borrowing conditions. In this paper, we investigate the effects of cross-sectional credit-supply shocks on the prices of durable goods. Understanding how prices capitalize credit in the cross-section is important for understanding the incidence, transmission, and aggregation of credit-supply shocks. Using loan-level data on the prices paid for used cars by millions of borrowers and hundreds of auto-loan lenders, we measure what happens to individual-level prices when only some borrowers are exposed to an exogenous shock to the user cost of credit. Holding car quality fixed with a battery of age-make-model-trim by month fixed effects, we document that loan maturity is capitalized into the price treated borrowers pay for identical cars, attenuating the benefit of cheaper financing. For a car buyer with an annual discount rate less than 8.9%, the benefits of being offered cheaper credit are more than offset by the higher purchase price of the car. Overall, our estimates suggest that one additional year of loan maturity is worth 2.8% of the car’s purchase price, an implied elasticity of price with respect to monthly payment size of -0.23.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w24699

 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us