The Macroeconomic Implications of Coholding
Abstract: We study the role that the joint distribution of liquid assets and credit card debt plays in aggregate. Grouping households across the distribution of liquid wealth, as is typically done, confounds two very different types of households: true hand-to-mouth households with low liquid wealth due to low liquid assets, and households with low liquid wealth due to high debt. This latter type are coholders who revolve credit card debt and simultaneously hold liquid assets. Coholders display a high marginal propensity to repay debt and a low marginal propensity to consume. To quantify the impact of unsecured credit card debt on stimulative fiscal transfers, we add a cash-in-advance constraint to a standard consumption-savings model. The model generates the co-holding of liquid assets and debt observed in the data and matches the empirically observed marginal propensities to consume and repay debt.