Research

Working Papers

House Price Perceptions and the Housing Wealth Effect, Job Market Paper [Latest] [SSRN]

Ranked 4th in Top Downloads for the Consumption, Preferences, & Savings Topic at SSRN (As of: 30 Nov 2023 – 29 Jan 2024)

In this paper, I determine the impact of household house price perceptions on the housing wealth effect. I build a structural model of consumption and housing with endogenous home ownership choice, where house price perceptions differ by home ownership status: renters are fully informed about house price changes, but owners are not. I find that the average marginal propensity to consume out of housing wealth (MPCH) is 2.7 cents in a year out of a $1 housing wealth increase for owners, and this effect is approximately twice as large for owners with full information, on average. Along the cross-section of households, the MPCH is largest for owners who face the highest liquidity and debt constraints, as well as for renters who are most likely to want to purchase a home. I further apply my model to examine the effects of house price perceptions on the transmission of a monetary policy tightening event. I determine that the debt and house price channels become increasingly important in the consumption response compared to the saving channel when the probability of updating perceptions rises in the economy. Focusing on the house price channel, my model predicts that the effectiveness of monetary policy transmission increases at higher levels of perception updating probability.

Presented at: 2024 WE_ARE Women in Economics, 2023 Imperial Job Market Candidates Evening, 2023 Chicago Booth Finance Brownbag, 2023 Imperial College Internal Finance Seminar, 2023 Frankfurt Reading Group on Household Finance, 2023 Imperial College Business School Student Seminar Series

Credit Constraints and the Distributional Effects of the Refinancing Channel [Latest] [SSRN] [AFA Poster]

The probability a household refinances their mortgage depends on both the likelihood a household applies for refinancing and the probability its application is approved by the recipient financial institution. This paper develops a model that identifies the household-level probability of approval separately from the application probability. The paper then investigates the distributional impact of credit constraints on the transmission of monetary policy through the mortgage refinancing channel in the U.S. economy. During an average month, households with high loan amounts, low incomes, as well as Black, Hispanic and Female households are most negatively affected by credit constraints. Through different monetary policy experiments, the paper shows that the effect of credit constraints is large in magnitude and amplifies refinancing heterogeneity in time, as specific groups are consistently unable to take advantage of lower mortgage rates. Finally, the paper examines the distributional effects to households after banks tighten credit standards. Under tighter credit conditions, households with high loan amounts, low to middle income levels, Hispanic and Asian or Pacific Islander and Female households experience the largest decrease in refinancing approvals. These findings reveal the households that are most negatively affected by credit constraints and thus in most need of streamlined refinancing programs.

Presented at: 2023 EEA-ESEM Congress, 2023 American Finance Association PhD Student Poster Session at the ASSA Annual Meeting, 20th Conference on Research on Economic Theory and Econometrics, 2022 Frankfurt Reading Group on Household Finance, 2021 ECONtribute & SAFE Household Finance Workshop, 2021 Imperial College Business School Student Seminar Series

Cross-Country Differences in Household Financial Decisions: A Structural Approach with Survey-Based Expectations, with Olga Goldfayn-Frank and Georgi Kocharkov [Slides]

Household financial decisions and their subjective expectations about macroeconomic outcomes vary within and across countries and change over time according to the new Consumer Expectations Survey of the ECB. To rationalize the role of subjective expectations for financial decisions, we estimate a structural model in which households decide how much to save under their survey-reported subjective expectations about the macroeconomy. We find that households in Italy and Spain save between 4 and 14 percentage points more under subjective expectations compared to what they would have saved under rational expectations. We also use the model to determine saving rates differences between countries and show that households in Italy save between 15 and 20 percentage points less than their European neighbors. We further decompose the variation in savings rates by focusing on the impact of expectations, preferences and income risk. Notably, German households save less than their European counterparts due to income risk and French households save less than other countries due to their preferences.

Presented by myself at: 2022 Bank of Finland and CEPR Joint Conference Monetary Policy in the Post-Pandemic Era, 2022 4th European Midwest Micro/Macro Conference, 2022 ISCG Meeting at the European Central Bank

Gender Differences in the Marginal Propensities to Consume, Pay Down Debt and Borrow, with Olga Goldfayn-Frank and Nate Vellekoop

We use questions from the NY Fed Survey of Consumer Expectations that ask how households would respond to an unexpected 10% change in income. Women are more inclined to repay debt after an unexpected increase in income, where men have a larger marginal propensity to consume. When asked about a decrease in income, both men and women report large reductions in spending, and women reduce spending more than men. These differences in responses can be related to gender differences in the debt-to-income ratio, the degree of discouraged borrowing, and liquidity constraints. Together these three variables explain about 40% of the gender differences in the marginal propensity to repay debt, and 75% of differences in the marginal propensity to borrow. A simple model with occasionally binding borrowing constraints can rationalize the gender differences in the marginal propensities to consume and repay debt.

Presented by myself at: 2023 American Economic Association Annual Meeting, 8th Annual Conference of the International Association for Applied Econometrics

Policy Research

How has the pandemic affected household finances in developing economies? with Crisitian Badarinza, Vimal Balasubramaniam and Tarun Ramadorai

Article in the Economics Observatory [Link]

Featured in the World Bank 2022 World Development Report [Link]

Subjective Probabilities in a Pandemic, with Crisitian Badarinza, Tarun Ramadorai and Antoine Uettwiller