Liquidity vs. Wealth in Household Debt Obligations: Evidence from Housing Policy in the Great Recession (with Peter Ganong). Draft, January 2020.
Winner of the AQR Top Finance Graduate Award.
Conditionally Accepted, American Economic Review.
Consumer Spending During Unemployment: Positive and Normative Implications (with Peter Ganong). Online Appendix. Spending Category Crosswalk. Replication Kit.
American Economic Review, 109(7): 2383-2424, July 2019. (Lead article)
WORK IN PROGRESS
Why do Borrowers Default on Mortgages? A New Method for Causal Attribution (with Peter Ganong)
There are two prevailing theories of borrower default: strategic default — when debt is too high relative to the value of the house — and adverse cash-flow events — such that payments are too high relative to available resources. It has been challenging to test between these theories in part because adverse events are measured with error, possibly leading to attenuation bias. We develop a new method for addressing this measurement error using a comparison group of borrowers with no strategic default motive. We implement the method using monthly administrative data linking income and mortgage default. Our central finding is that adverse events are a necessary condition for 97 percent of mortgage defaults. Although this finding contrasts sharply with predictions from standard models of mortgage default, we show that it is consistent with models where the private cost of mortgage default is high. This new identification method may be useful in other empirical settings where treatment is measured with error.
Racial and Ethnic Inequality in Consumption Smoothing (with Peter Ganong and Damon Jones)
We document a novel form of racial inequality. An extensive body of work shows a substantial wealth gap, where white households hold much more wealth than black and Hispanic households, even after conditioning on income. However, much less is known about how this gap translates into differences in economic welfare. To evaluate one of the welfare consequences of this gap, we build a novel dataset that links de-identified monthly data on income and spending with data on race and ethnicity. We find that black and Hispanic households cut their consumption 50 percent more than white households when faced with a similarly-sized income shock. We show that between half and all of this differential pass-through of income to consumption is explained by controlling for differences in financial wealth, suggesting that the racial wealth gap makes black and Hispanic households more vulnerable to income fluctuations.