The Causes and Consequences of Household Borrowing
Sunday, Jan. 7, 2018 1:00 PM - 3:00 PM
- Chair: Brian Melzer, Federal Reserve Bank of Chicago
Fiscal Stimulus and Consumer Debt
AbstractIn the aftermath of the consumer debt–induced recession, policymakers have questioned whether fiscal stimulus is effective during the periods of high consumer indebtedness. This study empirically investigates this question. Using detailed data on Department of Defense spending for the 2007–2009 period, we document that the open-economy relative fiscal multiplier is higher in geographies with higher consumer indebtedness. The results suggest that fiscal policy can mitigate the adverse effect of consumer (over)leverage on real economic output during a recession. We then exploit detailed microdata to evaluate whether aggregate demand and aggregate supply economic mechanisms contribute to the debt-dependent multiplier.
Debt and Human Capital: Evidence From Student Loans
AbstractThis paper investigates the dynamic relation between debt and investments in human capital. We document a negative causal effect of the level of undergraduate student debt on the probability of enrolling in a graduate degree for a random sample of the universe of federal student loan borrowers in the US. We exploit exogenous variation in student debt induced by tuition increases that affect differentially students within the same school across cohorts. We find that $4,000 in higher debt causes a 1.5 percentage point reduction in the probability of enrolling in graduate school relative to a mean of 12%. Further results suggest this effect is largely driven by credit constraints, is monotonically weaker with family income, and is attenuated for students who had compulsory personal finance training in high school. The results highlight an important trade off associated with debt-financing of human capital, and inform the debate on the effects of the large and increasing stock of student debt in the US.
House Prices, Mortgage Debt and Labor Mobility
AbstractUsing detailed credit and employment data for the United States, we estimate the effect
of mortgage debt on labor mobility. We find a robust negative relation between the loan-
to-value ratio (LTV) on the primary residence and labor mobility. Individuals with negative home equity are 3.6 percentage points less likely to move in a year. This effect is stronger for sub-prime and liquidity-constrained borrowers. We also find that diminished labor mobility owing to higher LTVs depresses labor income growth, especially for individuals with less access to liquidity and longer tenure in their current job. Consistent with a housing-lock explanation, we find that individuals with higher LTVs have higher intra-ZIPcode job mobility. Overall we document significant spillover from the housing market to the labor market.
Benjamin J. Keys,
University of Pennsylvania
University of Chicago
Federal Reserve Bank of New York
- G2 - Financial Institutions and Services