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Born to Be (Sub)Prime: An Exploratory Analysis

Bach, Helena ; Campa, Pietro ; De Giorgi, Giacomo ; Nosal, Jaromir and Pietrobon, Davide LU (2023) In AEA Papers and Proceedings 113. p.166-166
Abstract
We study how inheriting parents' credit histories affects the initial credit scores, access to credit, and life cycle borrowing of young individuals entering the credit market. We establish that inherited histories significantly positively affect initial scores, which in turn are very persistent. Inherited histories only affect outcomes through initial credit scores, which then have significant persistent effects on credit use and access, such as having a mortgage. Our results are consistent with mechanisms of self-fulfilling liquidity traps: low credit scores mean lack of access to credit, reinforcing low credit scores. Future research should address the contribution of such mechanisms to wealth inequality.
Please use this url to cite or link to this publication:
author
; ; ; and
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
D15, Intertemporal Household Choice, Life Cycle Models and Saving, G51, Household Finance, Household Saving, Borrowing, Debt and Wealth
in
AEA Papers and Proceedings
volume
113
pages
71 pages
publisher
American Economic Association
ISSN
2574-0768
DOI
10.1257/pandp.20231096
language
English
LU publication?
yes
id
8d9ef6db-a039-464b-84be-f1769ca0210d
date added to LUP
2023-08-24 18:02:32
date last changed
2023-08-25 11:48:49
@article{8d9ef6db-a039-464b-84be-f1769ca0210d,
  abstract     = {{We study how inheriting parents' credit histories affects the initial credit scores, access to credit, and life cycle borrowing of young individuals entering the credit market. We establish that inherited histories significantly positively affect initial scores, which in turn are very persistent. Inherited histories only affect outcomes through initial credit scores, which then have significant persistent effects on credit use and access, such as having a mortgage. Our results are consistent with mechanisms of self-fulfilling liquidity traps: low credit scores mean lack of access to credit, reinforcing low credit scores. Future research should address the contribution of such mechanisms to wealth inequality.}},
  author       = {{Bach, Helena and Campa, Pietro and De Giorgi, Giacomo and Nosal, Jaromir and Pietrobon, Davide}},
  issn         = {{2574-0768}},
  keywords     = {{D15; Intertemporal Household Choice; Life Cycle Models and Saving; G51; Household Finance; Household Saving; Borrowing; Debt and Wealth}},
  language     = {{eng}},
  pages        = {{166--166}},
  publisher    = {{American Economic Association}},
  series       = {{AEA Papers and Proceedings}},
  title        = {{Born to Be (Sub)Prime: An Exploratory Analysis}},
  url          = {{http://dx.doi.org/10.1257/pandp.20231096}},
  doi          = {{10.1257/pandp.20231096}},
  volume       = {{113}},
  year         = {{2023}},
}