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Journal Article
Consumers and the economy, part II: Household debt and the weak U.S. recovery
The U.S. economic recovery has been weak, especially in employment growth. A microeconomic analysis of U.S. counties shows that this weakness is closely related to elevated levels of household debt accumulated during the housing boom. Counties where household debt grew moderately from 2002 to 2006 have seen a moderation of employment losses and a robust recovery in durable consumption and residential investment. By contrast, counties that experienced large increases in household debt during the boom have been mired in a severe recessionary environment even after the official end of the ...
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.
Journal Article
Consumer debt and the economic recovery
A key ingredient of an economic recovery is a pickup in household spending supported by increased consumer debt. As the current economic recovery has struggled to take hold, household debt levels have grown little. Some evidence indicates that households adjusted debt in line with house price movements in their local markets. However, the data show that consumer debt cutbacks were largest among households that defaulted on mortgages or had lower credit scores, suggesting that household borrowing also was restricted by tight aggregate credit supply.
Working Paper
Understanding Preferences for Payment Cards using Household Scanner Data
We use consumer panel scanner data to examine households' payment choices, a new application of such data. In particular, we study the long-term shift towards payment cards, as well as the role of transaction size in determining choices. We find that idiosyncratic household preferences are a key driver of payment choice. Our estimates suggest that transaction size, while important, may have a smaller effect on payment choice than previously thought, and that the effect varies substantially across households. Our results further suggest that idiosyncratic household preferences evolve slowly ...
Working Paper
Are household surveys like tax forms: evidence from income underreporting of the self-employed
There is a large literature showing that the self-employed underreport their income to tax authorities. In this paper, we quantify the extent to which the self-employed also systematically underreport their income in U.S. household surveys. To do so, we use the Engel curve describing the relationship between income and expenditures of wage and salary workers to infer the actual income, and thus the reporting gap, of the self-employed based on their reported expenditures. We find that the self-employed underreport their income by about 30 percent. This result is remarkably robust across data ...
Working Paper
Household welfare, precautionary saving, and social insurance under multiple sources of risk
This paper assesses the quantitative importance of a number of sources of income risk for household welfare and precautionary saving. To that end I construct a lifecycle consumption model in which household income is subject to shocks associated with disability, health, unemployment, job changes, wages, work hours, and a residual component of household income. I use PSID data to estimate the key processes that drive and affect household income, and then use the consumption model to: (i) quantify the welfare value to consumers of providing full, actuarially fair insurance against each source ...
Working Paper
Are Millennials Different?
The economic wellbeing of the millennial generation, which entered its working-age years around the time of the 2007-09 recession, has received considerable attention from economists and the popular press. This chapter compares the socioeconomic and demographic characteristics of millennials with those of earlier generations and compares their income, saving, and consumption expenditures. Relative to members of earlier generations, millennials are more racially diverse, more educated, and more likely to have deferred marriage; these comparisons are continuations of longer-run trends in the ...
Working Paper
Retail CBDC and U.S. Monetary Policy Implementation: A Stylized Balance Sheet Analysis
This paper discusses how a Federal Reserve issued retail central bank digital currency (CBDC) could affect U.S. monetary policy implementation. Using a stylized balance sheet analysis, we analyze the effect a retail CBDC could have on the balance sheets of the Federal Reserve, commercial banks, and U.S. households. Then we consider how these balance sheet changes could affect monetary policy implementation for the Federal Reserve. We illustrate that the potential effects on monetary policy implementation from a retail CBDC are highly dependent on the initial conditions of the Federal ...
Journal Article
Recent changes to a measure of U.S. household debt service
Changes in levels of aggregate household debt in the United States may contain information about the current state of the nation's economy and may affect its future direction. A commonly used measure of household indebtedness is the household debt service ratio (formerly known as the household debt service burden), published since 1980 by the Board of Governors of the Federal Reserve System. Recent changes in financial markets have prompted a comprehensive revision of this statistic. This article describes the revision and introduces a new measure, the financial obligations ratio, which adds ...
Journal Article
What Explains the Decline in Life Insurance Ownership?
Life insurance ownership has declined markedly over the past 30 years, continuing a trend that began as early as 1960. In 1989, 77 percent of households owned life insurance (see figure 1). By 2013, that share had fallen to 60 percent. This article analyzes factors that might have contributed to the decline in life insurance ownership from 1989 to 2013. The focus of our analysis is on two broad sources of potential change in the demand for life insurance: changes in the socioeconomic and demographic characteristics of the population and changes in how those same characteristics are associated ...