Studies from Federal Reserve Bank of Chicago Reveal New Findings on Economics (Contract Terms, Employment Shocks, and Default In Credit Cards): Economics

2025 NOV 11 (NewsRx) -- By a News Reporter-Staff News Editor at Economics Daily Report -- Investigators publish new report on Economics. According to news reporting originating in Chicago, Illinois, by NewsRx journalists, research stated, “Regulatory concerns over a tension between expanding financial access and limiting default have led to significant restrictions on contract terms in a number of countries, despite limited evidence on their effectiveness. We use a large nation-wide RCT to examine new borrower responses to changes in interest rates and minimum payments for a credit card that accounted for 15% of all first-time formal loans in Mexico.”

The news reporters obtained a quote from the research from the Federal Reserve Bank of Chicago, “Default rates were 19% over the 26 month experiment and a 30 pp decrease in interest rates decreased default by 2.5 pp with no effects on the newest borrowers. Doubling minimum payments increased default by 0.8 pp during the experiment but reduced it by 1 pp afterwards, possibly by reducing debt. Matching the experimental sample to their formal employment histories we find that the effect of job separation-more common among new borrowers-on default is seven times larger than the effect of the 30 pp interest rate change.”

According to the news reporters, the research concluded: “We provide a simple framework for interpreting the experimental results, and rationalize the smaller contract term effects by their limited effects on cash flow rather than by differences in per-peso impacts.”

This research has been peer-reviewed.

For more information on this research see: Contract Terms, Employment Shocks, and Default In Credit Cards. Review of Economic Studies, 2025. Review of Economic Studies can be contacted at: Oxford Univ Press, Great Clarendon St, Oxford OX2 6DP, England. (Oxford University Press - http://www.oup.com/; Review of Economic Studies - restud.oxfordjournals.org)

Our news correspondents report that additional information may be obtained by contacting Diego Jimenez-Hernandez, Federal Reserve Bank of Chicago, Chicago, IL 60604, United States. Additional authors for this research include Sara G. Castellanos, Aprajit Mahajan, Eduardo Alcaraz Prous and Enrique Seira.

The direct object identifier (DOI) for that additional information is: https://doi.org/10.1093/restud/rdaf079. This DOI is a link to an online electronic document that is either free or for purchase, and can be your direct source for a journal article and its citation.

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