An Analysis of the Impact of Interest Rate Ceilings

Authors

  • DANIEL J. VILLEGAS

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    • The author is an economist in the Division of Price and Index Number Research, Bureau of Labor Statistics (BLS). The views expressed are those of the author and do not necessarily reflect the policies of the Bureau of Labor Statistics (BLS) or the views of other BLS staff members. He wishes to thank his colleagues Steven Cobb, Robert Gillingham, John Greenlees, and Kimberly Zieschang for their helpful suggestions. The author also wishes to thank Michael Brennan and Douglas F. Greer for their comments, and Herb Cover for his assistance in processing the data.

ABSTRACT

The first aim of this study is to estimate the interest rates paid for motor vehicle loans. The second aim is to identify those potential borrowers most likely to be rationed out of the market by the imposition of rate ceilings. Rate ceilings constrain the rates paid by successful loan applicants to be no greater than the applicable ceiling level. These constraints are dealt with by treating the interest rate paid as a variable truncated at the ceiling level. Assuming the dependent variable is truncated normal, consistent estimates are obtained by employing the maximum likelihood method of Hausman and Wise.

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