Search Results
Working Paper
For Better and for Worse? Effects of Access to High-Cost Consumer Credit
I provide empirical evidence that the effect of high-cost credit access on household material well-being depends on if a household is experiencing temporary financial distress. Using detailed data on household consumption and location, as well as geographic variation in access to high cost payday loans over time, I find that payday credit access improves wellbeing for households in distress by helping them smooth consumption. In periods of temporary financial distress?after extreme weather events like hurricanes and blizzards?I find that payday loan access mitigates declines in spending on ...
Working Paper
Lifecycle Patterns of Saving and Wealth Accumulation
Empirical analysis of U.S. income, saving and wealth dynamics is constrained by a lack of high-quality and comprehensive household-level panel data. This paper uses a pseudo-panel approach, tracking types of agents by birth cohort and across time through a series of cross-section snapshots synthesized with macro aggregates. The key micro source data is the Survey of Consumer Finances (SCF), which captures the top of the wealth distribution by sampling from administrative records. The SCF has the detailed balance sheet components, incomes, and interfamily transfers needed to use both sides of ...
Working Paper
Modeling the Consumption Response to the CARES Act
To predict the effects of the 2020 U.S. CARES act on consumption, we extend a model that matches responses of households to past consumption stimulus packages. The extension allows us to account for two novel features of the coronavirus crisis. First, during the lockdown, many types of spending are undesirable or impossible. Second, some of the jobs that disappear during the lockdown will not reappear when it is lifted. We estimate that, if the lockdown is short-lived, the combination of expanded unemployment insurance benefits and stimulus payments should be sufficient to allow a swift ...
Working Paper
Consumption, Wealth, and Income Inequality: A Tale of Tails
We provide evidence that the distributions of consumption, labor income, wealth, and capital income exhibit asymptotic power-law behavior with a strict ranking of upper tail inequality, in that order, from the least to the most unequal. We show analytically and quantitatively that the canonical heterogeneous-agent model cannot replicate the proper ranking and magnitudes of these four tails simultaneously. Mechanisms addressing the wealth concentration puzzle in these models through return heterogeneity lead to a mirror consumption concentration puzzle. We match the cross-sectional data on ...
Discussion Paper
What About Spending on Consumer Goods?
In a recent Liberty Street Economics post, I showed that one major category of consumer spending?spending on discretionary services such as recreation, transportation, and household utilities?behaved very differently in the 2007-09 recession and subsequent recovery than in previous business cycles: specifically, it fell more steeply and has recovered much more slowly. This finding prompted one of the editors of this blog to inquire whether consumer goods spending has also departed markedly from its behavior in past cycles. To answer that question, I examined the decline of expenditures on ...
Working Paper
More Tax, Less Refi? The Mortgage Interest Deduction and Monetary Policy Pass-Through
We study how the mortgage interest deduction (MID) constrains mortgage refinancing. Households who deduct mortgage interest from their taxes face a lower post-tax interest rate, reducing the interest savings from refinancing net of taxes. We estimate the effect of the MID on refinancing using the Tax Cuts and Jobs Act (TCJA) of 2017 as a natural experiment. The TCJA doubled the standard deduction, dramatically reducing MID uptake and value. This policy affected borrowers differently based on their pre-existing mortgage interest, federal and state tax rates, and property taxes. We use ...
Journal Article
Consumption Growth Regimes and the Post-Financial Crisis Recovery
Andrew Foerster and Jason Choi find that consumption has grown more slowly after the Great Recession due to the continued influence of persistent factors unusual to see outside recessions.
Working Paper
Financial Distress and Macroeconomic Risks
This paper investigates how, and how much, household financial distress (FD), arising from allowing debts to go unpaid, matters for the aggregate and cross-sectional consumption responses to macroeconomic risk. Through a battery of structural models, we show that FD can affect consumption responses through three channels: (1) as another margin of adjustment to shocks (direct channel); (2) because its persistence implies a significant degree of preference heterogeneity (indirect channel); and (3) because it can exacerbate macroeconomic risks whenever it is more severe in the hardest-hit ...
Working Paper
Inferring Inequality with Home Production
We revisit the causes, welfare consequences, and policy implications of the dispersion in households' labor market outcomes using a model with uninsurable risk, incomplete asset markets, and a home production technology. Accounting for home production amplifies welfare-based differences across households meaning that inequality is larger than we thought. Using the optimality condition that households allocate more consumption to their more productive sector, we infer that the dispersion in home productivity across households is roughly three times as large as the dispersion in their wages. ...
Working Paper
Household Financial Distress and the Burden of “Aggregate” Shocks
The goal of this paper is to show that household-level financial distress (FD) varies greatly, meaning there is unequal exposure to macroeconomic risk, and that FD can increase macroeconomic vulnerability. To do this, we first establish three facts: (i) regions in the U.S. vary significantly in their "FD-intensity," measured either by how much additional credit households therein can access, or in how delinquent they typically are on debts, (ii) shocks that are typically viewed as "aggregate" in nature hit geographic areas quite differently, and (iii) FD is an economic "preexisting ...