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Working Paper
Credit When You Need It
We estimate the causal effect of emergency credit on households’ finances after a negative shock. To do so, we link application data from the U.S. Federal Disaster Loan program, which provides loans to households that have uninsured damages from a federally-declared natural disaster, to a panel of credit records before and after the shock. We exploit a discontinuity in the loan approval rules that led applicants with debt-to-income ratios below 40% to be differentially likely to be approved. Using an instrumented difference-in-differences research design, we find that credit provision at ...
Working Paper
Recurring-Payment Sensitivity in Household Borrowing
This paper provides evidence of payment sensitivity in household borrowing decisions: Mortgage borrowers respond to the size of the recurring payment as opposed to discounted total loan costs when choosing between loan options. I develop a test for payment sensitivity that exploits differences in predicted bunching at kinks and notches generated by mortgage insurance requirements. I find that borrowing is substantially more responsive to nominal recurring payments than to the net present value of total costs. To rationalize the result, outside borrowing costs would have to be implausibly ...