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Credit card debt and default over the life cycle

Lopes, Paula (2008) Credit card debt and default over the life cycle. Journal of Money, Credit and Banking, 40 (4). pp. 769-790. ISSN 0022-2879

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Identification Number: 10.1111/j.1538-4616.2008.00135.x


This paper solves an empirically parameterized model of life cycle consumption, which allows for uncollaterized borrowing and the possibility of default. The simulation results show that: (i) “social stigma” and credit limit have a very large impact on default rates; (ii) education level also has a significant effect on the probability of default, namely, through differences in the shape of lifetime labor income profiles; and (iii) the response of simulated default rates to labor income shocks is determined by the nature of labor income uncertainty (temporary versus permanent). Additionally, the model generates simultaneous consumer holdings of credit card debt and liquid assets.

Item Type: Article
Official URL:
Additional Information: © 2008 Ohio State University
Divisions: Finance
Subjects: H Social Sciences > HG Finance
JEL classification: D - Microeconomics > D1 - Household Behavior and Family Economics > D14 - Personal Finance
D - Microeconomics > D9 - Intertemporal Choice and Growth > D91 - Intertemporal Consumer Choice; Life Cycle Models and Saving
E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E21 - Macroeconomics: Consumption; Saving; Aggregate Physical and Financial Consumer Wealth
Date Deposited: 24 Sep 2012 10:56
Last Modified: 16 May 2024 00:49

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