Search Results
Working Paper
Monetary Policy with Racial Inequality
I develop a heterogeneous-agent New-Keynesian model featuring racial inequality in income and wealth, and studies interactions between racial inequality and monetary policy. Black and Hispanic workers gain more from accommodative monetary policy than White workers mainly due to higher labor market risks. Their gains are larger also because of a larger proportion of them are hand-to-mouth, while wealthy White workers gain more from asset price appreciation. Monetary and fiscal policies are substitutes in providing insurance against cyclical labor market risks. Racial minorities gain even more ...
Report
Latent Heterogeneity in the Marginal Propensity to Consume
We estimate the unconditional distribution of the marginal propensity to consume (MPC) using clustering regression and the 2008 stimulus payments. Since we do not measure heterogeneity as the variation of MPCs with observables, we can recover the full distribution of MPCs. Households spent at least one quarter of the rebate, and individual households used rebates for different goods. While many observables are individually correlated with our estimated MPCs, these relationships disappear when tested jointly, except for nonsalary income and the average propensity to consume. Household ...
Working Paper
Monetary Policy with Racial Inequality
I develop a heterogeneous-agent New-Keynesian model featuring racial inequality in income and wealth, and studies interactions between racial inequality and monetary policy. Black and Hispanic workers gain more from accommodative monetary policy than White workers mainly due to higher labor market risks. Their gains are larger also because of a larger proportion of them are hand-to-mouth, while wealthy White workers gain more from asset price appreciation. Monetary and fiscal policies are substitutes in providing insurance against cyclical labor market risks. Racial minorities gain even more ...
Report
Subjective Uncertainty and the Marginal Propensity to Consume
Earnings uncertainty is central to most heterogeneous-household models. Yet, there is surprisingly little evidence on how subjective uncertainty is related to consumption behavior. Using unique data from the Survey of Consumer Expectations, we show that the marginal propensity to consume (MPC) is increasing and concave in individual specific earnings growth uncertainty. In the workhorse consumption–savings model, augmented with risk heterogeneity, MPCs decline with earnings uncertainty, contrary to the empirical evidence. We pinpoint which mechanisms, central to the model, create this ...
Discussion Paper
A Boost in Your Paycheck: How Are U.S. Workers Using the Payroll Tax Cut?
Over the past several months, there was a flurry of debate in Washington over the extension of the payroll tax cut. Many supporters of the tax cut?worth about $1,000 to a family earning the median income of slightly more than $50,000 a year?have cited its importance to the nation?s economic recovery, while opponents claim that it will only add to the national deficit without boosting the economy. Exactly how such a tax cut affects the aggregate economy relies heavily on how U.S. workers use the extra funds in their paychecks. Unfortunately, we know little about how such tax cuts are used by ...
Working Paper
Heterogeneity in the Marginal Propensity to Consume: Evidence from Covid-19 Stimulus Payments
We identify 22,340 recipients of Covid-19 Economic Impact Payments in anonymized transaction-level debit card data from Facteus. We use an event study framework to show that in the two weeks following a sudden $1,200 payment from the IRS, consumers immediately increased spending by an average of $604, implying a marginal propensity to consume (MPC) of 50%. Consumer spending fell back to normal levels after two weeks. Stimulus recipients who live paycheck-to-paycheck spend 62% of the stimulus payment within two weeks, while recipients who save much of their monthly income spend only 35% of the ...
Report
Stimulus through Insurance: The Marginal Propensity to Repay Debt
Using detailed micro data, we document that households often use “stimulus” checks to pay down debt, especially those with low net wealth-to-income ratios. To rationalize these patterns, we introduce a borrowing price schedule into an otherwise standard incomplete markets model. Because interest rates rise with debt, borrowers have increasingly larger incentives to use an additional dollar to reduce debt service payments rather than consume. Using our calibrated model, we then study whether and how this marginal propensity to repay debt (MPRD) alters the aggregate implications of fiscal ...
Working Paper
Balance-Sheet Households and Fiscal Stimulus: Lessons from the Payroll Tax Cut and Its Expiration
Balance-sheet repair drove the response of a significant fraction of households to fiscal stimulus following the Great Recession. By combining survey, behavioral, and time-series evidence on the 2011 payroll tax cut and its expiration in 2013, this papers identifies and analyzes households who smooth debt repayment. These "balance-sheet households" are as prevalent as "permanent-income households," who smooth consumption in response to the temporary tax cut, and outnumber "constrained households," who temporarily boost spending. The asymmetric spending response of balance-sheet ...
Working Paper
High-Frequency Spending Responses to Government Transfer Payments
This paper evaluates the marginal propensity to consume (MPC) out of the 2020 fiscal stimulus payments using high-frequency, transaction-level data for a sample of low-income cardholders, many of whom are unbanked. Consumers’ MPC out of non-stimulus income and their MPC out of tax refunds are estimated simultaneously. Spending responds less on impact to the stimulus payments than to non-stimulus income (15 cents versus 20 cents per dollar of income), but stimulus-payment spending quickly catches up and is noticeably higher than non-stimulus-income spending on a cumulative basis after 16 ...
Working Paper
Heterogeneity in the Marginal Propensity to Consume: Evidence from Covid-19 Stimulus Payments
We identify 16,016 recipients of Covid-19 Economic Impact Payments in anonymized transaction-level debit card data from Facteus. We use an event study framework to show that in the two weeks following a sudden $1,200 payment from the IRS, consumers immediately increased spending by an average of $577, implying a marginal propensity to consume (MPC) of 48%. Consumer spending falls back to normal levels after two weeks. Stimulus recipients who live paycheck-to-paycheck spend 68% of the stimulus payment immediately, while recipients who save much of their monthly income spend 23% of the stimulus ...