Born to Be (Sub)Prime: An Exploratory Analysis
AEA Papers and Proceedings
vol. 113,
May 2023
(pp. 166-71)
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.Citation
Bach, Helena, Pietro Campa, Giacomo De Giorgi, Jaromir Nosal, and Davide Pietrobon. 2023. "Born to Be (Sub)Prime: An Exploratory Analysis." AEA Papers and Proceedings, 113: 166-71. DOI: 10.1257/pandp.20231096Additional Materials
JEL Classification
- D15 Intertemporal Household Choice; Life Cycle Models and Saving
- G51 Household Finance: Household Saving, Borrowing, Debt, and Wealth