TY - JOUR
T1 - Household balance sheets, consumption, and the economic slump
AU - Mian, Atif
AU - Rao, Kamalesh
AU - Sufi, Amir
N1 - Funding Information:
*Lucy Hu, Ernest Liu, Christian Martinez, Yoshio Nozawa, and Calvin Zhang provided superb research assistance. We are grateful to the National Science Foundation, the Initiative on Global Markets at Chicago Booth, and the Fama-Miller Center at Chicago Booth for funding. We thank Larry Katz, Brian Melzer, Andrei Shleifer, three anonymous referees, and seminar participants at Chicago Booth, Columbia Business School, the Federal Reserve Bank of St. Louis, Harvard, MIT Sloan, MIT Economics, NYU Stern, Stanford GSB, UC Berkeley, UCLA, UC San Diego, and the NBER Monetary Economics meeting provided valuable feedback. The results or views expressed in this study are those of the authors and do not reflect those of the providers of the data used in this analysis.
PY - 2013/11
Y1 - 2013/11
N2 - We investigate the consumption consequences of the 2006-9 housing collapse using the highly unequal geographic distribution of wealth losses across the United States. We estimate a large elasticityof consumption with respect to housing net worth of 0.6 to 0.8, which soundly rejects the hypothesis of full consumption risk-sharing. The average marginal propensity to consume (MPC) out of housing wealth is 5-7 cents with substantial heterogeneity across ZIP codes. ZIP codes with poorer and more levered households have a significantly higher MPC out of housing wealth. In line with the MPC result, ZIP codes experiencing larger wealth losses, particularly those with poorer and more levered households, experience a larger reduction in credit limits, refinancing likelihood, and credit scores. Our findings highlight the role of debt and the geographic distribution of wealth shocks in explaining the large and unequal decline in consumption from 2006 to 2009. JEL Codes: E21, E32, E44, E60.
AB - We investigate the consumption consequences of the 2006-9 housing collapse using the highly unequal geographic distribution of wealth losses across the United States. We estimate a large elasticityof consumption with respect to housing net worth of 0.6 to 0.8, which soundly rejects the hypothesis of full consumption risk-sharing. The average marginal propensity to consume (MPC) out of housing wealth is 5-7 cents with substantial heterogeneity across ZIP codes. ZIP codes with poorer and more levered households have a significantly higher MPC out of housing wealth. In line with the MPC result, ZIP codes experiencing larger wealth losses, particularly those with poorer and more levered households, experience a larger reduction in credit limits, refinancing likelihood, and credit scores. Our findings highlight the role of debt and the geographic distribution of wealth shocks in explaining the large and unequal decline in consumption from 2006 to 2009. JEL Codes: E21, E32, E44, E60.
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U2 - 10.1093/qje/qjt020
DO - 10.1093/qje/qjt020
M3 - Article
AN - SCOPUS:84885790891
SN - 0033-5533
VL - 128
SP - 1687
EP - 1726
JO - Quarterly Journal of Economics
JF - Quarterly Journal of Economics
IS - 4
M1 - qjt020
ER -