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Working Paper
Consumption Heterogeneity: Micro Drivers and Macro Implications
This paper explores the microfoundations of consumption models and quantifies the macro implications of consumption heterogeneity. We propose a new empirical method to estimate the response of consumption to permanent and transitory income shocks for different groups of households. We then apply this method to administrative data from Denmark. The large sample size, along with detailed household balance sheet information, allows us to finely divide the population along relevant dimensions. We find that households that stand to lose from an interest rate hike are significantly more responsive ...
Working Paper
Income Shocks and Their Transmission into Consumption
This paper reviews the economics literature of, primarily, the past 20 years that studies the link between income shocks and consumption fluctuations at the household level. We identify three broad approaches through which researchers estimate the consumption response to income shocks: (1) structural methods in which a fully or partially specified model helps identify the consumption response to income shocks from the data, (2) natural experiments in which the consumption response of one group that receives an income shock is compared with another group that does not, and (3) elicitation ...
Working Paper
Racial Heterogeneity in Consumption Responses to the Economic Impact Payment
We investigate how the consumption responses to the Economic Impact Payment during the pandemic (commonly known as the pandemic stimulus check) differed across racial groups, and what accounts for the differences. If only family size and age are controlled, as in the baseline regression of Parker et al. (2022), in addition to race, Black and Hispanic households exhibit a higher marginal propensity to consume (MPC, preferred estimate being 0.29) than Whites (0.16) in response to monetary transfers under the Economic Impact Payment. This racial heterogeneity is accounted for by differences in ...
Working Paper
Explaining Contract Heterogeneity in the Credit Card Market
Administrative data are used to establish patterns in contract terms, usage, and default rates of anonymized individual credit card accounts. The canonical heterogeneous-agent macro model is extended with a competitive credit card industry and ex-ante heterogeneity to explain these facts, including that the spread on card interest rates is several multiples of default rates. Some model implications of general interest are: (i) a 10 percent cap on credit card interest rates, as proposed in recent legislation, reduces credit limits for risky borrowers and is welfare reducing for them, and (ii) ...