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Newsletter
Inequality and Recessions
The increase in inequality over the past several decades has received widespread attention from both academics and the public at large. While much of this discourse centers on either the causes or normative implications of increasing inequality, it is important to ask whether the widening gap between the rich and poor has any direct effects on macroeconomic aggregates and, in particular, on the severity of the Great Recession, when output and consumption dropped precipitously and were slow to recover (see figure 1).
Discussion Paper
Which Households Have Negative Wealth?
At some point in its life a household’s total debt may exceed its total assets, in which case it has “negative wealth.” Even if this status is temporary, it may affect the household’s ability to save for durable goods, restrict access to further credit, and may require living in a state of limited consumption. Detailed analysis of the holdings of negative-wealth households, however, is a topic that has received little attention. In particular, relatively little is known about the characteristics of such households or about what drives negative wealth. A better understanding of these ...
Report
Housing busts and household mobility
Using two decades of American Housing Survey data from 1985 to 2005, we estimate the influence of negative home equity and rising mortgage interest rates on household mobility. We find that both factors lead to lower, not higher, mobility rates over time. The effects are economically large -- mobility is almost 50 percent lower for owners with negative equity in their homes. This finding does not imply that current concerns over defaults and homeowners having to relocate are entirely misplaced. It does indicate that, in the past, the mortgage lock-in effects of these two factors were dominant ...
Report
Banks, markets, and efficiency
In this paper, we address the question whether increasing households' financial market access improves welfare in a financial system in which there is intense competition among banks for private households' funds. Following earlier work by Diamond and by Fecht, we use a model in which the degree of liquidity insurance offered to households through banks' deposit contracts is restrained by households' financial market access. However, we also assume spatial monopolistic competition among banks. Because monopoly rents are assumed to bring about inefficiencies, improved financial market access ...
Conference Paper
Householder response to the earned income tax credit: path of sustenance or road to asset building
This study seeks to gain a more complete picture about how the Earned Income Tax Credit program influences consumer expenditure and saving decisions. Based on survey data collected from over 18,000 taxpayers participating at the Volunteer Income Tax Assistance sites administered by the Community Food Resource Center, a nonprofit organization in New York City, we find that a fairly large proportion of lower-income taxpayers expect to use the majority of their refund for the purpose of paying debt and other more immediate expenses. Even so, almost 11 percent of these taxpayers reported that ...
Newsletter
Food inflation and the consumption patterns of U.S. households
In July 2008, food prices were 6.0% above their July 2007 level. This article examines how different household types have been affected by the recent rapid rise in food prices.
Journal Article
Consumers and the economy, part I: Household credit and personal saving
In the years since the bursting of the housing bubble, the personal saving rate has trended up from around 1% to around 6%, while the ratio of household debt to disposable income has dropped from 130% to 118%. Changes over time in the availability of credit to households can explain 90% of the variance of the saving rate since the mid-1960s, including the recent uptrend, according to a simple empirical model.
Report
Inflation inequality in the United States
Inflation is often assumed to affect all people in the same way. In practice, differences in spending patterns across households and differences in price increases across goods and services lead to unequal levels of inflation for different households. In this paper, we measure the degree of inequality in inflation across U.S. households for the period 1987-2001. ; Our results suggest that the inflation experiences of U.S. households vary significantly. Most of the differences can be traced to changes in the relative prices of education, health care, and gasoline. We find that cost of living ...
Report
Have amenities become relatively more important than firm productivity advantages in metropolitan areas?
We analyze patterns of compensating differentials to determine whether a region's bundle of site characteristics has a greater net effect on household location decisions relative to firm location decisions in U.S. metropolitan areas over time. We estimate skill-adjusted wages and attribute-adjusted rents using hedonic regressions for 238 metropolitan areas in 1990 and 2000. Within the framework of the standard Roback model, we classify each metropolitan area based on whether amenities or firm productivity advantages dominate and analyze the extent to which these classifications change between ...
Report
Using home maintenance and repairs to smooth variable earnings
Recent research indicates that the marked increase in U.S. income inequality over the last twenty-five years has not been matched by a similar increase in consumption inequality. This paper examines the role of saving/dissaving in a house as a vehicle for consumption smoothing. Data from the American Housing Survey show that expenditures on home maintenance and repairs are economically significant, amounting to roughly $1,750 per household each year. This figure is comparable to the labor literature estimates that put households' average annual transitory income variance at about $2,200. Our ...