Department of Finance
Brigham Young University
Provo, UT 84602
Institutional Affiliation: Brigham Young University
NBER Working Papers and Publications
|January 2020||Real Effects of Search Frictions in Consumer Credit Markets|
with Taylor D. Nadauld, Christopher Palmer: w26645
We establish two underappreciated facts about costly search. First, unless demand is perfectly inelastic, search frictions can result in significant deadweight loss by decreasing consumption. Second, whenever cross-price elasticities are non-zero, costly search in one market also affects quantities in other markets. As predicted by our model of search for credit under elastic demand, we show that search frictions in credit markets contribute to price dispersion, affect loan sizes, and decrease final-goods consumption. Using microdata from millions of auto-loan applications and originations not intermediated by car dealers, we isolate plausibly exogenous variation in interest rates due to institution-specific pricing rules that price risk with step functions. These within-lender discontinui...
|March 2019||Monthly Payment Targeting and the Demand for Maturity|
with Taylor D. Nadauld, Christopher Palmer: w25668
In this paper, we provide evidence of the importance of monthly payments in the market for consumer installment debt. Auto debt in particular has grown rapidly since the Great Recession and has eclipsed credit cards in total debt outstanding. Auto-loan maturities have also increased such that most auto-loan originations now have a term of over 72 months. We document three phenomena we jointly refer to as monthly payment targeting. First, using data from 500,000 used auto loans and discontinuities in contract terms offered by hundreds of lenders, we show that demand is more sensitive to maturity than interest rate, consistent with consumers managing payment size when making debt decisions. Second, many consumers appear to employ segregated mental accounts, spending exogenous payment savings...
|June 2018||The Capitalization of Consumer Financing into Durable Goods Prices|
with Taylor D. Nadauld, Christopher Palmer, Ryan D. Pratt: w24699
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 ...