Fields: Macroeconomics with heterogeneous agents, Macro-Finance, Household finance
Topics: Housing and mortgage markets, income inequality, financial stability, financial crises
Technical: Numerical methods, quantitative modelling, free open source software (mostly Julia and R, see my minor contributions to Julia packages), high performance computing (i.e. running parallelized programs on remote clusters)
Falling Behind: Has Rising Inequality Fueled the American Debt Boom? (joint with Moritz Drechsel-Grau)
Job market paper [paper] [slides] [poster]
Abstract: We evaluate the hypothesis that rising inequality was a causal source of the US household debt boom since 1980. The mechanism builds on the observation that households care about their social status. To keep up with the ever richer Joneses, the middle class substitutes status-enhancing houses for status-neutral consumption. These houses are mortgage-financed, creating a debt boom across the income distribution. Using a stylized model we show analytically that aggregate debt increases as top incomes rise. In a quantitative general equilibrium model we show that Keeping up with the Joneses and rising income inequality generate 60% of the observed boom in mortgage debt and 50% of the house price boom. We compare this channel to two competing mechanisms. The Global Saving Glut hypothesis gives rise to a similar debt boom, but does not generate a house prices boom. Loosening collateral constraints does not generate booms in either debt or house prices.
Presented at CEPR Frankfurt · SED Mexico · ESSFM Gerzensee · ESEM Cologne · VfS Freiburg · NOeG Winter Meeting Vienna · Frankfurt-Mannheim Macro · Stockholm University · CEPR Mannheim
Understanding Housing Wealth Effects: Debt, Homeownership and the Lifecycle (joint with Frederick Zadow)
Abstract: Housing wealth effects—the reaction of consumption to changes in house prices—were at the heart of the Great Recession. Empirical and quantitative macroeconomic studies have found that housing wealth effects are stronger for more indebted households. One important policy implication is that lowering debt limits for borrowers will dampen the consumption slump in a house price bust. Such conclusions might be premature. We build a simple life-cycle model with housing with closed form solutions for housing wealth effects. We show that the strength of housing wealth effects crucially depends on the underlying household characteristics which also determine the debt levels. In this framework imposing one-size-fits-all debt limits does not necessarily mitigate housing wealth effects. To be effective, policies have to be tailored to borrowers’ characteristics. Aggregate housing wealth effects can be reduced in three ways: (i) if old homeowners reduce their housing wealth; (ii) if the home ownership rate decreases; (iii) if agents have smaller houses. We provide a simple empirical test of our model predictions. When explaining housing wealth effects, we find that the level of mortgages turns statistically insignificant once relevant household characteristics (age and a proxy for housing preferences) are added.
Presented at ESEM Manchester