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Working Paper
A concise test of rational consumer search
A simple model of time allocation between work and price-search predicts that consumers spend relatively more time searching for better prices for goods of which they consume relatively more. Using scanner data, we confirm empirically that consumers pay lower (higher) prices for goods that they buy more (less) of than other consumers. Our results are conservative, because we compare goods that are defined as narrowly as possible by UPC codes, and provide a lower bound for the savings obtained from bargain hunting.
Journal Article
Is risk sharing in the United States a regional phenomenon?
Regions within the United States routinely experience economic fluctuations that differ from those of other regions. For example, in the past few years, falling wheat prices have slowed growth in the value of total output in Kansas. Such developments can pose concerns for policymakers because macroeconomic tools like monetary policy affect all regions, not just specific regions. Fortunately, several mechanisms help insulate regional income and consumption from region-specific output fluctuations. Diversification of asset ownership across regions, made possible by national capital markets, ...
Working Paper
House prices and risk sharing
We show that homeowners are able to maintain a high level of consumption following job loss or disability in periods of rising house values. However, the consumption drop for consumers who simultaneously lose their job and equity in their houses is substantial. Using data from the Panel Study of Income Dynamics, we verify that homeowners smooth consumption more than renters, and that consumption smoothing improves when houses appreciate in the area of residence. We calibrate and simulate a model of endogenous homeownership and home-equity loans, and show that the model is able to reproduce ...
Working Paper
Moving to a job: The role of home equity, debt, and access to credit
Using credit report data from two of the three major credit bureaus in the United States, we infer with high certainty whether households move to other labor markets defined by metropolitan areas. We estimate how moving patterns relate to labor market conditions, personal credit, and homeownership using panel regressions with fixed effects which control for all constant individual-specific traits. We interpret the patterns through simulations of a dynamic model of consumption, housing, and location choice. We find that homeowners with negative home equity move more than other homeowners, in ...
Working Paper
The Rise and Fall of Consumption in the 2000s
U.S. consumption has gone through steep ups and downs since the turn of the millennium, but the causes of these fluctuations are still imperfectly identified. We quantify the relative impact on consumption growth of income, unemployment, house prices, credit scores, debt, expectations, foreclosures, inequality, and refinancings for four subperiods: the ?dot-com recession? (2001-2003), the ?subprime boom? (2004-2006), the Great Recession (2007-2009), and the ?tepid recovery? (2010-2012). We document that the explanatory power of different factors varies by subperiods, implying that a ...
Working Paper
Consumption and aggregate constraints : evidence from U.S. states and Canadian provinces
State-level consumption exhibits excess sensitivity to lagged income to the same extent as US aggregate data, but state-specific (idiosyncratic) consumption exhibits substantially less sensitivity to lagged state-specific income---a result that also holds for Canadian provinces. We propose the following interpretation: borrowing and lending in response to changes in consumer demand is easier for an individual US state than it is for the US as a whole. The PIH may thus be a good model for describing the reaction of consumption to idiosyncratic disposable income shocks even if it fails at the ...
Working Paper
Industrial specialization and the asymmetry of shocks across regions
Economic integration, through greater capital market integration, will induce higher regional specialization in production, rendering regional shocks less symmetric. To support this claim empirically, we develop a utility based measure of shock asymmetry and calculate it for each U.S. state. We regress it (using both ordinary least squares and instrumental variables) on a state-by-state 1-digit industrial specialization index and a 2-digit manufacturing specialization index, controlling for relevant economic and demographic variables. The main empirical result is that both specialization ...
Working Paper
Risk sharing and industrial specialization ; regional and international evidence
We provide empirical evidence that risk sharing enhances specialization in production. To the best of our knowledge, this well-established and important theoretical proposition has not been tested before. Our empirical procedure is summarized as follows. First, we construct a measure of specialization in production, and calculate an index of specialization for each of the European Community (EC) and non-EC OECD countries, U.S. states, Canadian provinces, Japanese prefectures, Latin American countries, and regions of Italy, Spain, and the United Kingdom. Then, we estimate the degree of capital ...
Working Paper
The rise and fall of consumption in the '00s
The major portion of U.S. gross domestic product (GDP) is accounted for by consumer spending, which significantly affects the business cycle. Consumer demand has been extremely volatile since 2000, especially given the booms and busts in housing values and in subprime mortgage lending. While it is well-established that housing net worth, credit availability, and household debt levels help to explain changes in consumer spending, the roles played by other potential determinants of consumption are not well identified or understood. This paper uses county-level data and a multiple-regression ...
Working Paper
Moving to a new job: the role of home equity, debt, and access to credit
The severe decline in house prices during and after the Great Recession may have hampered adjustment in U.S. labor markets by limiting mobility of unemployed workers. Mobility will suffer if unemployed workers are reluctant to leave homes that, with debt exceeding value, cannot be disposed of without injecting cash or defaulting?a pattern referred to as "housing lock-in." If such reluctance keeps workers from moving from depressed areas to areas with available jobs, the Beveridge curve, which depicts the relationship between vacancies and joblessness, may shift outward. To examine whether ...