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The demand for retailer‐financed instalment credit: An econometric analysis
Author(s) -
Crook Jonathan
Publication year - 1989
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.4090100408
Subject(s) - credit rationing , economics , proxy (statistics) , interest rate , exchequer , rationing , stock (firearms) , monetary economics , microeconomics , actuarial science , financial economics , mechanical engineering , health care , engineering , machine learning , politics , computer science , law , political science , economic growth
During the mid‐ to late 1980s the UK's Chancellor of the Exchequer has attempted to reduce the volume of consumer credit extended by increasing interest rates rather than by re‐introducing terms controls. This paper presents estimates of demand functions for new credit extended by retailers which was financed by them and repaid by instalments. Following earlier papers, a stock‐adjustment model is presented that is extended to allow for credit rationing. The results suggest that the demand for such new credit extended is related negatively to terms control and positively to personal disposable income and expectations. Demand was not found to be related to (a proxy for) the nominal interest rate charged by retailers (although it was found to be positively related to the real rate). The former finding is consistent with questionnaire evidence that consumers are unaware of the interest rate that they pay for credit. Elasticities of demand are presented.