The Capitalization of Consumer Financing into Durable Goods Prices
Name
SSRN-id3191443.pdf
Description
Accepted version
Size
933.56 KB
Format
Unknown
Checksum (MD5)
5097f99b118a50c5cfc6f1adc916075d
Author(s)
Argyle, Bronson
Nadauld, Taylor
Palmer, Christopher John
Pratt, Ryan
Date Issued
October 2020
Journal
Journal of Finance
Publisher
Wiley
Citation
Argyle, Bronson et al. "The Capitalization of Consumer Financing into Durable Goods Prices." Journal of Finance 76, 1 (October 2020): 169-210. © 2020 American Finance Association
Version
Author's final manuscript
Abstract
Using loan-level data on millions of used-car transactions across hundreds of lenders, we study the consumer response to exogenous variation in credit terms. Borrowers offered shorter maturity decrease expenditures enough to offset 60% to 90% of the monthly payment increase. Most of this is driven by shifting toward lower-quality cars, but affected borrowers offset 20% to 30% of a monthly payment shock by negotiating lower prices for equivalent cars. Our results suggest that durable goods prices adjust to reflect credit terms even at the individual level, with one year of additional loan maturity increasing a car's price by 2.8%.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.1111/jofi.12977
