Search Results
Discussion Paper
Are Income and Credit Scores Highly Correlated?
To the best of our knowledge, statistical analysis on the relationship between income and credit scores using proper data remains scant. Using a unique proprietary data set, this note attempts to fill the gap in our understanding of this relationship.
Discussion Paper
Who Drives Luxury Cars (Only for a While)?
Household consumption of luxury goods has attracted increasing attention in various areas of finance and economics research.
Working Paper
Borrowing from yourself: 401(k) loans and household balance sheets
We examine 401(k) borrowing since 1992 and identify a puzzle: despite potential gains from borrowing against 401(k) assets instead of from other sources, most eligible households eschew 401(k) loans, including many who carry relatively expensive balances on credit cards and auto loans. We estimate that households with access to 401(k) loans could have saved about $3.3 billion in 2004--about $200 per household--by shifting debt to 401(k) loans. We find that liquidity constrained households are most likely to borrow against their accounts; however, the fastest growth has been among higher ...
Working Paper
Credit Scores, Social Capital, and Stock Market Participation
While a rapidly growing body of research underscores the influence of social capital on financial decisions and economic developments, objective data-based measurements of social capital are lacking. We introduce average credit scores as an indicator of a community's social capital and present evidence that this measure is consistent with, but richer and more robust than, those used in the existing literature, such as electoral participation, blood donations, and survey-based measures. Merging unique proprietary credit score data with two nationwide representative household surveys, we show ...
Working Paper
Gamblers as personal finance activists
Gambling behavior can serve as an informative indicator of important household heterogeneity that is difficult to observe directly in data. We present, to the best of our knowledge, the first comprehensive study of the consumption and personal finance of gamblers using a nationwide representative household survey. We find that consumers are more likely to gamble when income is higher than its normal level predicted by observable characteristics, and that nongambling expenditures tend to increase with gambling activities. In addition, gamblers are more likely to concurrently have various types ...
Working Paper
Are Millennials Different?
The economic wellbeing of the millennial generation, which entered its working-age years around the time of the 2007-09 recession, has received considerable attention from economists and the popular press. This chapter compares the socioeconomic and demographic characteristics of millennials with those of earlier generations and compares their income, saving, and consumption expenditures. Relative to members of earlier generations, millennials are more racially diverse, more educated, and more likely to have deferred marriage; these comparisons are continuations of longer-run trends in the ...
Working Paper
Transaction costs and consumption
The Rational Expectations Permanent Income Hypothesis (RE-PIH) fails to explain several features of consumption behavior documented by previous researchers. First, the marginal propensity to consume (MPC) out of unanticipated income shocks tends to decrease as the size of the shocks becomes larger. Second, the MPC out of small income shocks is well above what the RE-PIH predicts. Third, consumption responds to small anticipated income changes, but not to large ones. This paper argues that these findings can be reconciled within a RE-PIH framework that includes a cash-in-advance constraint. In ...
Working Paper
Are household surveys like tax forms: evidence from income underreporting of the self-employed
There is a large literature showing that the self-employed underreport their income to tax authorities. In this paper, we quantify the extent to which the self-employed also systematically underreport their income in U.S. household surveys. To do so, we use the Engel curve describing the relationship between income and expenditures of wage and salary workers to infer the actual income, and thus the reporting gap, of the self-employed based on their reported expenditures. We find that the self-employed underreport their income by about 30 percent. This result is remarkably robust across data ...
Working Paper
Learning by investing--embodied technology and business cycles
In the last decade of the 20th century, the U.S. economy witnessed a persistent and substantial increase in private investment. The boom was sharply reversed in 2001, and a great deal of evidence suggests that the capital stock had become excessive. Standard equilibrium business cycle models have difficulties in predicting the investment boom and overshooting. An embodied technology model is constructed to replicate the pattern of investment boom and collapse. Unlike previous models of embodiment, the present model assumes that new technology increases the productivity of capital of all ...