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Showing results 1 to 10 of approximately 33.
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Working Paper
Student Loans and Homeownership
We estimate the effect of student loan debt on subsequent homeownership in a uniquely constructed administrative dataset for a nationally representative cohort. We instrument for the amount of individual student debt using changes to the in-state tuition rate at public 4-year colleges in the student's home state. A $1,000 increase in student loan debt lowers the homeownership rate by about 1.5 percentage points for public 4-year college-goers during their mid 20s, equivalent to an average delay of 2.5 months in attaining homeownership. Validity tests suggest that the results are not ...
Report
Credit and Income Inequality
How does credit access for small business owners affect income inequality? A bank’s cutoff rule, employed in the decision to grant loans and based on applicants’ credit scores, provides us with the exogenous variation needed to answer this question. Analyzing uniquely detailed loan application data, we find that application acceptance increases recipients’ income five years later by more than 10 percent compared to denied applicants. This effect is mostly driven by upward mobility of poor individuals, especially if credit-constrained, thereby reducing income inequality among those who ...
Report
How much do bank shocks affect investment? Evidence from matched bank-firm loan data
We show that supply-side financial shocks have a large impact on firms' investment. We do this by developing a new methodology to separate firm-borrowing shocks from bank supply shocks using a vast sample of matched bank-firm lending data. We decompose loan movements in Japan for the period 1990 to 2010 into bank, firm, industry, and common shocks. The high degree of financial institution concentration means that individual banks are large relative to the size of the economy, which creates a role for granular shocks as in Gabaix (2011). As a result, bank supply shocks?that is, movements in ...
Working Paper
The effects of changes in local-bank health on household consumption
This study investigates the relationship between credit availability and household consumption using a novel approach to separate credit demand and supply. We find that a deterioration in local bank health reduces household consumption, with the strongest effects occurring for households that are more likely to need credit—especially those experiencing a negative income shock and having limited liquid assets. The main contributions of the study are the use of an arguably exogenous measure of local bank health and multifaceted indicators of constrained households. Our findings contribute to ...
Discussion Paper
Do Bank Shocks Affect Aggregate Investment?
Traditionally, we have thought of the fates of specific banks as perhaps symptomatic of problems in the financial market but not as causal determinants of fluctuations in aggregate investment and other real economic activity. However, the high level of bank concentration in much of the OECD (Organisation for Economic Co-operation and Development) means that large amounts of lending are channeled through a small number of institutions that are no longer small even in comparison to the largest economies. Consequently, problems in a few large institutions could potentially have a large impact on ...
Working Paper
Monetary Policy and Home Buying Inequality
Does monetary policy influence who becomes a home owner? Home purchases by low- and moderate-income households may be particularly sensitive to mortgage interest rates, as these households’ budgets are tighter and they more frequently come up against binding payment-to-income ratio constraints in credit decisions. Exploiting the timing of high-frequency observations of mortgage applicants locking in their interest rates around monetary policy shocks, I find that a 1 percentage point policy-induced increase in mortgage rates lowers the presence of low-income households in the population of ...
Working Paper
A Theory of Housing Demand Shocks
Housing demand shocks in standard macroeconomic models are a primary source of house price fluctuations, but those models have difficulties in generating the observed large volatility of house prices relative to rents. We provide a microeconomic foundation for the reduced-form housing demand shocks with a tractable heterogenous-agent framework. In our model with heterogeneous beliefs, an expansion of credit supply raises housing demand of optimistic buyers and boosts house prices without affecting rents. A credit supply shock also leads to a positive correlation between house trading volumes ...
Report
Credit Frictions in the Great Recession
Although a credit tightening is commonly recognized as a key determinant of the Great Recession, to date, it is unclear whether a worsening of credit conditions faced by households or by firms was most responsible for the downturn. Some studies have suggested that the household-side credit channel is quantitatively the most important one. Many others contend that the firm-side channel played a crucial role. We propose a model in which both channels are present and explicitly formalized. Our analysis indicates that the household-side credit channel is quantitatively more relevant than the ...
Working Paper
Auto Sales and Credit Supply
Vehicle purchases fell by more than 20 percent during the 2007-09 recession, and auto loan originations fell by a third. We show that vehicle purchases typically account for an outsized share of the contraction in economic activity during a recession, in part because a concurrent tightening in auto lending conditions makes car purchases less affordable for many households. We explore the link between lending conditions and vehicle purchases with a novel gauge of credit supply conditions--household perceptions of vehicle financing conditions as measured on the Reuters/University of Michigan ...
Working Paper
The effects of changes in local-bank health on household consumption
Focusing on localized measures of bank health and economic activity, and renters as well as homeowners, this paper uses an innovative approach to identifying households likely in need of credit to investigate the effect on household spending of a deterioration in local-bank health. The analysis shows that local-bank health tends to impact the expenditures of renters more than homeowners, with the strongest effects for households that likely need credit?those experiencing a negative income shock and having limited liquid wealth. These findings contribute to the discussion of the linkages ...