Journal ArticleDOI
Household Balance Sheets, Consumption, and the Economic Slump*
Atif Mian,Kamalesh Rao,Amir Sufi +2 more
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In this article, the authors use the highly unequal geographic distribution of wealth losses across the United States to estimate a large elasticity of consumption with respect to housing net worth of 0.6 to 0.8, which soundly rejects the hypothesis of full consumption risk sharing.Abstract:
lapse using the highly unequal geographic distribution of wealth losses across the United States. We estimate a large elasticity of consumption with respect to housing net worth of 0.6 to 0.8, which soundly rejects the hypothesis of full consumption risk-sharing. The average marginal propensity to consume (MPC) out of housing wealth is 5–7 cents with substantial heterogeneity across ZIP codes. ZIP codes with poorer and more levered households have a significantly higher MPC out of housing wealth. In line with the MPC result, ZIP codes experiencing larger wealth losses, particularly those with poorer and more levered households, experience a larger reduction in credit limits, refinancing likelihood, and credit scores. Our findings highlight the role of debt and the geographic distribution of wealth shocks in explaining the large and unequal decline in consumption from 2006 to 2009. JEL Codes: E21, E32, E44, E60.read more
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Regional Divergence and House Prices
Greg Howard,Jack Liebersohn +1 more
TL;DR: The authors developed a model of the U.S. housing market that explains much of the time series of rents and house prices since World War II, and showed that rents are tied to regional income inequality, and therefore, house prices are determined by how much faster incomes are growing in richer regions.
Journal ArticleDOI
The Local Effects of Foreclosures
TL;DR: In this paper, the authors exploit the staggered and discontinuous changes in interest rates among adjustable rate mortgages to identify the effects of foreclosures independently of housing prices and introduce a new mechanism independent of the housing prices whereby forecl closures reduce local optimism and raise uncertainty, thereby leading to a contraction of credit that affects hiring, especially small businesses.
Journal ArticleDOI
Financial frictions, real estate collateral and small firm activity in Europe
TL;DR: This article investigated the importance of housing-based collateral for small and young firms across six European economies and found that borrowing, investment, and employment are all more strongly correlated with house price growth in these small firms, compared with slightly larger or older firms.
Journal ArticleDOI
Monetary Policy Transmission to Consumer Financial Stress and Durable Consumption
TL;DR: The authors examined the effects of monetary policy on household self-assessed financial stress and durable consumption using panel data from eighteen annual waves of the British Household Panel Survey, and found symmetric effects on durable consumption, mainly driven by mortgagors with high debt burden or limited access to liquidity and younger renters who are prospective home buyers.
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Journal ArticleDOI
Optimum consumption and portfolio rules in a continuous-time model☆
TL;DR: In this paper, the authors considered the continuous-time consumption-portfolio problem for an individual whose income is generated by capital gains on investments in assets with prices assumed to satisfy the geometric Brownian motion hypothesis, which implies that asset prices are stationary and lognormally distributed.
Posted Content
Agency Costs, Net Worth, And Business Fluctuations
Ben S. Bernanke,Mark Gertler +1 more
TL;DR: The authors constructs a simple neoclassical model of intrinsic business cycle dynamics in which borrowers' balance sheet positions play an important role and shows that the agency costs of undertaking physical investments are inversely related to the entrepreneur's/borrower's net worth.
Posted ContentDOI
Agency Costs, Net Worth, and Business Fluctuations.
Mark Gertler,Ben S. Bernanke +1 more
TL;DR: The authors developed a simple neoclassical model of the business cycle in which the condition of borrowers' balance sheets is a source of output dynamics, and the mechanism is that higher borrower net worth reduces the agency costs of financing real capital investments.
Journal ArticleDOI
Home Bias at Home: Local Equity Preference in Domestic Portfolios
TL;DR: The authors showed that the strong bias in favor of domestic securities is a well-documented characteristic of international investment portfolios, yet the preference for investing close to home also applies to portfolios of domestic stocks.
Book ChapterDOI
Optimum Consumption and Portfolio Rules in a Continuous-Time Model*
TL;DR: In this paper, the authors considered the continuous-time consumption-portfolio problem for an individual whose income is generated by capital gains on investments in assets with prices assumed to satisfy the geometric Brownian motion hypothesis, which implies that asset prices are stationary and lognormally distributed.
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