Search Results
Working Paper
Stimulus through Insurance: The Marginal Propensity to Repay Debt
Using detailed micro data, we document that households often use "stimulus" checks to pay down debt, especially those with low net wealth-to-income ratios. To rationalize these patterns, we introduce a borrowing price schedule into an otherwise standard incomplete markets model. Because interest rates rise with debt, borrowers have increasingly larger incentives to use an additional dollar to reduce debt service payments rather than consume. Using our calibrated model, we then study whether and how this marginal propensity to repay debt (MPRD) alters the aggregate implications of fiscal ...
Discussion Paper
Consumption Sensitivity of Uncertain Households
Uncertainty is a key component of everyday economic decisions of consumers and, perhaps not surprisingly, it plays a central role in economic models. According to economic theory, forward-looking consumers rely on their expectations and perceived uncertainty when making economic decisions. Nevertheless, measuring the uncertainty that households actually perceive, and how it affects consumer behavior, is challenging. The probabilistic nature of the Survey of Consumer Expectations enables us to make progress on this subject and to construct household-specific time-varying uncertainty. In our ...
Discussion Paper
Assessing the Current State of Wage Inflation
Economists often look at nominal wage growth to gauge labor market imbalances, price pressures, and households’ spending ability. But to use wage growth for these purposes, it is important to look through short-run fluctuations and retrieve underlying wage inflation. In this post, we use our own measure of wage growth persistence—called Trend Wage Inflation (TWIn in short)—to summarize what we learned from wage growth behavior in the past years and draw conclusions for what may lie ahead. Since peaking in late 2021, TWIn has been on a steady decline, reaching levels near those of the ...
Discussion Paper
Firm Heterogeneity and the Response of Investment to Monetary Policy
It is well known that monetary policy affects firms’ investment decisions. But which firms are the most responsive to changes in interest rates? And does this responsiveness vary over time? The literature has given diverse answers to this question, focusing on characteristics such as firm size, age, and financial position, and mostly studying these traits in isolation. In this post based on a recent Staff Report, we explore how investment responsiveness to monetary policy changes across firms and over time. We find that investment by most firms in most time periods responds little to ...
Discussion Paper
Did State Reopenings Increase Consumer Spending?
The spread of COVID-19 in the United States has had a profound impact on economic activity. Beginning in March, most states imposed severe restrictions on households and businesses to slow the spread of the virus. This was followed by a gradual loosening of restrictions (“reopening”) starting in April. As the virus has re-emerged, a number of states have taken steps to reverse the reopening of their economies. For example, Texas and Florida closed bars again in June, and Arizona additionally paused operations of gyms and movie theatres. Taken together, these measures raise the question of ...
Discussion Paper
How Did State Reopenings Affect Small Businesses?
In our previous post, we looked at the effects that the reopening of state economies across the United States has had on consumer spending. We found a significant effect of reopening, especially regarding spending in restaurants and bars as well as in the healthcare sector. In this companion post, we focus specifically on small businesses, using two different sources of high-frequency data, and we employ a methodology similar to that of our previous post to study the effects of reopening on small business activity along various dimensions. Our results indicate that, much like for consumer ...
Discussion Paper
Many Small Businesses in the Services Sector Are Unlikely to Reopen
The services sector was hit hard during the COVID-19 pandemic. Small businesses were particularly affected, and many of them were forced to close. We examine the state of these firms using micro data from Homebase (HB), a scheduling and time tracking tool that is used by around 100,000 businesses, mostly small firms, in the leisure and hospitality and retail industries. The data reveal that 35 percent of businesses that were active prior to the pandemic are still closed and that most have been inactive for twenty weeks or longer. We estimate that each additional week of being closed reduces ...
Discussion Paper
Who’s Ready to Spend? Constrained Consumption across the Income Distribution
Spending on goods and services that were constrained during the pandemic is expected to grow at a fast pace as the economy reopens. In this post, we look at detailed spending data to track which consumption categories were the most constrained by the pandemic due to social distancing. We find that, in 2019, high-income households typically spent relatively more on these pandemic-constrained goods and services. Our findings suggest that these consumers may have strongly reduced consumption during the pandemic and will likely play a crucial role in unleashing pent-up demand when pandemic ...
Discussion Paper
COVID-19 and Small Businesses: Uneven Patterns by Race and Income
The COVID-19 pandemic resulted in one of the sharpest recessions and recoveries in U.S. history. As the virus spread over the country in a matter of weeks in March 2020, most states rapidly locked down nonessential economic activity, which plummeted as a result. As the first wave of COVID-19 subsided and people gradually learned to “live with the virus,” states reversed most of the initial lockdowns and economic activity rebounded. In our ongoing Economic Inequality series, we have explored many aspects of how the economic turmoil associated with COVID-19 differentially affected ...
Discussion Paper
What Have Workers Done with the Time Freed up by Commuting Less?
The COVID-19 pandemic has dramatically changed the way Americans spend their time. One of the most enduring shifts has occurred in the workplace, with millions of employees making the switch to work from home. Even as the pandemic has waned, more than 15 percent of full-time employees remain fully remote and an additional 30 percent work in hybrid arrangements (Barrero, Bloom, and Davis). These changes have substantially reduced time spent commuting to work; in the aggregate, Americans now spend 60 million fewer hours traveling to work each day. In this post, we investigate how people spend ...