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Modigliani Meets Minsky: Inequality, Debt, and Financial Fragility in America, 1950-2016
Bartscher, Alina K.; Steins, Ulrike I.; Schularick, Moritz; Kuhn, Moritz (2020-05-01)
This paper studies the secular increase in U.S. household debt and its relation to growing income inequality and financial fragility. We exploit a new household-level data set that covers the joint distributions of debt, income, and wealth in the United States over the past seven decades. The data show that increased borrowing by middle-class families with low income growth played a central role in rising indebtedness. Debt-to-income ratios have risen most dramatically for households between the 50th and 90th percentiles of the income distribution. While their income growth was low, ...
Staff Reports , Paper 924

Working Paper
Does Greater Inequality Lead to More Household Borrowing? New Evidence from Household Data
Kudlyak, Marianna; Mondragon, John; Coibion, Olivier; Gorodnichenko, Yuriy (2014-01-10)
One suggested hypothesis for the dramatic rise in household borrowing that preceded the financial crisis is that low-income households increased their demand for credit to finance higher consumption expenditures in order to "keep up" with higher-income households. Using household level data on debt accumulation during 2001-2012, we show that low-income households in high-inequality regions accumulated less debt relative to income than their counterparts in lower-inequality regions, which negates the hypothesis. We argue instead that these patterns are consistent with supply-side ...
Working Paper , Paper 14-1

Report
Insolvency after the 2005 bankruptcy reform
Albanesi, Stefania; Nosal, Jaromir B. (2015-04-01)
Using a comprehensive panel dataset on U.S. households, we study the effects of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), the most substantive reform of personal bankruptcy in the United States since the Bankruptcy Reform Act of 1978. The 2005 legislation introduced a means test based on income to establish eligibility for Chapter 7 bankruptcy and increased the administrative requirements to file, leading to a rise in the opportunity cost and, especially, the financial cost of filing for bankruptcy. We study the effects of the reform on bankruptcy, insolvency, ...
Staff Reports , Paper 725

Report
Did the Target data breach change consumer assessments of payment card security?
Greene, Claire; Stavins, Joanna (2016-08-01)
Previous research has found that perceptions of payment security affect consumers? use of payment instruments. We test whether the Target data breach in 2013 was associated with a change in consumers? perceptions of the security of credit cards and debit cards and with subsequent changes in consumers? use of payment cards. Using data from the Survey of Consumer Payment Choice (SCPC), we find that, controlling for possible confounding effects of demographic differences between the two groups, ratings by consumers who assessed the security of personal information of debit cards shortly after ...
Research Data Report , Paper 16-1

Report
Import competition and household debt
Loualiche, Erik; Sauvagnat, Julien; Barrot, Jean-Noël; Plosser, Matthew (2017-08-15)
We analyze the effect of import competition on household balance sheets from 2000 to 2007 using individual data on consumer finances. We exploit variation in exposure to foreign competition using industry-level shipping costs and initial differences in regions? industry specialization. We show that household debt increased significantly in regions where manufacturing industries are more exposed to import competition. A one standard deviation increase in exposure to import competition explains 30 percent of the cross-regional variation in household leverage growth, and is mostly driven by home ...
Staff Reports , Paper 821

Report
Echoes of rising tuition in students’ borrowing, educational attainment, and homeownership in post-recession America
Van der Klaauw, Wilbert; Lee, Donghoon; Brown, Meta; Strair, Katherine; Bleemer, Zachary (2017-07-01)
State average enrollment-weighted public college tuition and fees per school year rose by $3,843 (or 81 percent) between 2001 and 2009. How are recent cohorts absorbing this surge in college costs, and what effect is it having on their post-schooling consumption? Our analysis of tuition, educational attainment, and debt patterns for nine youth cohorts across all fifty states indicates that the tuition hike accounted for $1,628, or about 30 percent, of the increase in average student debt per capita among 24-year-olds between 2003 and 2011. However, estimates indicate no meaningful response to ...
Staff Reports , Paper 820

Report
Measuring student debt and its performance
Van der Klaauw, Wilbert; Lee, Donghoon; Brown, Meta; Haughwout, Andrew F.; Scally, Joelle (2014-04-01)
Studies continue to indicate that higher education is frequently a worthwhile investment for individuals and that it raises the productivity of the workforce as a whole. While the rising cost of post-secondary education has not eliminated this "college premium," it has raised new questions about how growing numbers of students can make these investments. One solution to this problem is student loans, which have come to play an increasingly important role in financing higher education. Yet, despite its importance, educational debt is not well understood. Among the reasons is that there ...
Staff Reports , Paper 668

Discussion Paper
A Monthly Peek into Americans’ Credit During the COVID-19 Pandemic
Lee, Donghoon; Haughwout, Andrew F.; Scally, Joelle; Van der Klaauw, Wilbert (2020-08-06)
Total household debt was roughly flat in the second quarter of 2020, according to the latest Quarterly Report on Household Debt and Credit from the New York Fed’s Center for Microeconomic Data. But, for the first time, the dynamics in household debt balances were driven primarily by a sharp decline in credit card balances, as consumer spending plummeted. In an effort to gain greater clarity, the New York Fed and the Federal Reserve System have acquired monthly updates for the New York Fed Consumer Credit Panel, based on anonymized Equifax credit report data. We’ve been closely watching ...
Liberty Street Economics , Paper 20200806

Discussion Paper
How Do Consumers Believe the Pandemic Will Affect the Economy and Their Households?
Armantier, Olivier; Koşar, Gizem; Lu, Jessica; Goldman, Leo; Van der Klaauw, Wilbert; Pomerantz, Rachel (2020-10-16)
In this post we analyze consumer beliefs about the duration of the economic impact of the pandemic and present new evidence on their expected spending, income, debt delinquency, and employment outcomes, conditional on different scenarios for the future path of the pandemic. We find that between June and August respondents to the New York Fed Survey of Consumer Expectations (SCE) have grown less optimistic about the pandemic’s economic consequences ending in the near future and also about the likelihood of feeling comfortable in crowded places within the next three months. Although labor ...
Liberty Street Economics , Paper 20201016

Discussion Paper
Can credit cards with access to complimentary credit score information benefit consumers and lenders?
Mikhed, Vyacheslav (2015-09-30)
Barclaycard U.S. is one of a growing number of banks offering cardholders free access to their FICO Credit Scores with credit card products. On November 19, 2014, Paul Wilmore of Barclaycard U.S. presented Barclays? rationale for offering this feature and provided his perspective on its development. He also discussed how consumers responded to this feature in terms of their spending, repayment behavior, and lifespan and intensity of their relationship with the bank. According to Wilmore, program participation is correlated with increased card spending, decreased credit utilization and ...
Consumer Finance Institute discussion papers , Paper 15-3

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