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Discussion Paper
Wealth shocks and macroeconomic dynamics
The effect of wealth on consumption is an issue of longstanding interest to economists. Analysts believe that fluctuations in household wealth have driven major swings in economic activity. This paper considers so-called wealth effects?the impact of changes in wealth on household consumption and the overall macroeconomy. There is an extensive existing literature on wealth effects, but there are also many unanswered issues and questions. This paper reviews the important issues regarding the role wealth plays in the macroeconomy and argues that there is a need for much more wealth effect ...
Working Paper
Do the rich save more?
The issue of whether higher lifetime income households save a larger fraction of their income is an important factor in the evaluation of tax and macroeconomic policy. Despite an outpouring of research on this topic in the 1950s and 1960s, the question remains unresolved and has since received little attention. This paper revisits the issue, using new empirical methods and the Panel Study on Income Dynamics, the Survey of Consumer Finances, and the Consumer Expenditure Survey. We first consider the various ways in which life cycle models can be altered to generate differences in saving rates ...
Working Paper
Designing loan modifications to address the mortgage crisis and the making home affordable program
Delinquencies on residential mortgages and home foreclosures have risen dramatically in the past couple of years. The mortgage losses triggered a broad-based financial crisis and severe recession, which, in turn, exacerbated the initial financial distress faced by homeowners. Although servicers increased their loss mitigation efforts as defaults began to mount, foreclosures continued to occur in cases where both the borrower and investor would be better off if such an outcome were avoided. The U.S. government has engaged in a number of initiatives to reduce such foreclosures. This paper ...
Working Paper
How prudent are consumers?
Working Paper
The evolution of household income volatility
Using data from the PSID, we find that household income has become noticeably more volatile during the past thirty years. We estimate that the standard deviation of percent changes in household income rose one-fourth between the early 1970s and early 2000s. This widening in the distribution of percent changes is concentrated in the tails of the distribution, and especially in the lower tail: Changes between the 25th and 75th percentiles are almost the same size now as thirty years ago, but changes at the 10th percentile look substantially more negative. The boost in volatility occurred ...
Working Paper
Measuring household wealth in the Panel Study of Income Dynamics: the role of retirement assets
While the Panel Study of Income Dynamics (PSID) has much to offer researchers studying household behavior, one limitation is that its summary measure of wealth is not as broad as those of other commonly used surveys, such as the Survey of Consumer Finances (SCF), because it does not include the value of defined-contribution (DC) pensions. This paper describes the pension data available in the PSID and shows how they can be used to create a more comprehensive picture of household finances. We then compare various measures derived from these data with their counterparts from the SCF. Along a ...
Journal Article
The relationship between leverage and household spending behavior: evidence from the 2007-2009 survey of consumer finances
Some recent studies suggest that high levels of household debt and leverage have contributed to the relatively sluggish growth of consumer spending in the past few years (Dynan, 2012; Mian, Rao, and Sufi, 2013). However, this conclusion has not been widely accepted because of the empirical challenges associated with identifying the relationship amid the dramatic and complicated changes in the household economic environment during the Great Recession and subsequent slow recovery. Leverage may indirectly influence spending by increasing borrowing constraints, impeding refinancing, and raising ...
Journal Article
Survey of finance companies, 2000
Against a backdrop of robust economic activity, the finance company sector expanded briskly over the second half of the 1990s. The value of receivables held by finance companies in the United States rose nearly 50 percent, or about 11 percent a year, between 1996 and 2000. Business lending remained finance companies' major line of activity; the importance to the sector of consumer lending and leasing declined slightly, and the importance of real estate lending rose a bit. These and other findings from the Federal Reserve's mid-2000 benchmark survey of finance companies, as well as ...
Newsletter
Helping Homeowners During the Covid-19 Pandemic: Lessons from the Great Recession
The Covid-19 public health crisis has sharply reduced the earnings of millions of U.S. households, following the severe curtailment of economic activity needed to contain the spread of the virus. Meanwhile, households continue to confront their ongoing financial obligations. The ability of households to manage these obligations has important consequences for the speed at which the U.S. economy can recover from the current crisis. Households that are wiped out financially in the coming months will not be in a position to strongly resume spending once the virus containment issues have passed. ...