Working Paper: CEPR ID: DP9503
Authors: Dean S. Karlan; Jonathan Zinman
Abstract: The long-run price elasticity of demand for credit is a key parameter for intertemporal modeling, policy levers, and lending practice. We use randomized interest rates, offered across 80 regions by Mexico?s largest microlender, to identify a 29-month dollars-borrowed elasticity of -1.9. This elasticity increases from -1.1 in year one to -2.9 in year three. The number of borrowers is also elastic. Credit bureau data does not show evidence of crowd-out. Competitors do not respond by reducing rates, perhaps because Compartamos? profits are unchanged. The results are consistent with multiple equilibria in loan pricing.
Keywords: interest rate elasticities; interest rate policy; interest rates; microcredit
JEL Codes: E43; G21; O11; O12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Interest rate changes (E43) | Amount borrowed (G21) |
| Interest rate changes (E43) | Long-run price elasticity of demand for credit (D12) |
| Lower interest rates (E43) | New borrowers (G51) |
| Lower interest rates (E43) | No evidence of crowdout (H49) |
| Lower prices (D49) | Expand access to credit (G21) |