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Working Paper
Does it pay to read your junk mail? evidence of the effect of advertising on home equity credit choices
We examine the effect of direct mail (commonly referred to as junk mail) advertising on individual financial decisions by studying consumer choice of home equity debt contracts. Consistent with the theoretical predictions, we find that financial variables underlying the relative pricing of debt contracts are the leading factors explaining consumers home equity debt choice. Furthermore, we also find that the intended use of debt proceeds significantly impacts consumer choice. However, when we study a subset of consumers who received a direct mail solicitation for a particular debt contract ...
Journal Article
The asset-backed securities markets, the crisis, and TALF
Credit performs the essential function of moving funds from the savers who want to lend to the investors and consumers who wish to borrow. Under ideal conditions, this process ensures that funds are invested by the most skilled and productive individuals, thus improving efficiency and stimulating growth, and that consumers can get funds when they need them the most to satisfy their consumption needs.
Working Paper
Why do banks reward their customers to use their credit cards?
Using a unique administrative level dataset from a large and diverse U.S. financial institution, we test the impact of rewards on credit card spending and debt. Specifically, we study the impact of cash-back rewards on individuals before and during their enrollment in the program. We find that with an average cash-back reward of $25, spending and debt increases by $79 and $191 a month, respectively during the first quarter. Furthermore, we find that cardholders who do not use their card prior to the cash-back program increase their spending and debt more than cardholders with debt prior to ...
Journal Article
The asset-backed securities markets, the crisis and TALF
The authors explain the role of asset-backed securities markets in generating credit and liquidity and how this role was disrupted during the financial crisis. They discuss the implementation of the Term Asset-Backed Securities Loan Facility (TALF) and argue that this program helped reestablish the ABS markets and the credit supply. and the reversion to a stable fiscal regime.
Working Paper
Loan commitments and private firms
Bank lending is an important source of funding for firms. Most loans are in the form of credit lines. Empirical studies of line demand have been complicated by their use of data on publicly traded firms, which have a wide menu of financing options. We avoid this problem by using a unique proprietary data set from a large financial institution of loan commitments made to 712 privately-held firms. We test Martin and Santomero's (1997) model, in which lines give firms the speed and flexibility to pursue investment opportunities. Our findings are consistent with their predictions. Firms facing ...
Working Paper
Spending responses to state sales tax holidays
Every year over 20 states offer sales tax holidays (STHs) on specific items like clothes, shoes and other items to encourage consumption, affecting over 100 million consumers. We use a unique dataset of credit cards transaction to study the spending response to these holidays. Using a diff-in-diff methodology, we find that STHs increase overall daily spending by 8%, with large percentage increases in spending on children?s clothes and shoes of 193% and 98% respectively. Consumers with children increase spending more during STHs. Our estimates of price elasticities range from 6 for big box ...
Working Paper
Bank Stress Test Results and Their Impact on Consumer Credit Markets
Using Federal Reserve (Fed) confidential stress test data, we exploit the gap between the Fed and bank capital projections as an exogenous shock to banks and analyze how this shock is transmitted to consumer credit markets. First, we document that banks in the 90th percentile of the capital gap reduce their new supply of risky credit by 13 percent compared with those in the 10th percentile and cut their overall credit card risk exposure on an annual basis. Next, we show that these banks find alternative ways to remain competitive and attract customers by lowering interest rates and offering ...
Working Paper
The age of reason: financial decisions over the lifecycle
The sophistication of financial decisions varies with age: middle-aged adults borrow at lower interest rates and pay fewer fees compared to both younger and older adults. We document this pattern in ten financial markets. The measured effects cannot be explained by observed risk characteristics. The sophistication of financial choices peaks around age 53 in our cross-sectional data. Our results are consistent with the hypothesis that financial sophistication rises and then falls with age, although the patterns that we observe represent a mix of age effects and cohort effects.
Working Paper
Does the Relative Income of Peers Cause Financial Distress? Evidence from Lottery Winners and Neighboring Bankruptcies
SUPERSEDED BY WP 18-22 We examine whether relative income differences among peers can generate financial distress. Using lottery winnings as plausibly exogenous variations in the relative income of peers, we find that the dollar magnitude of a lottery win of one neighbor increases subsequent borrowing and bankruptcies among other neighbors. We also examine which factors may mitigate lenders? bankruptcy risk in these neighborhoods. We show that bankruptcy filers can obtain secured but not unsecured debt, and lenders provide secured credit to low-risk but not high-risk debtors. In addition, we ...