I have joined the Federal Reserve Bank of San Francisco as a senior economist! I work on household finance and empirical macroeconomics, specializing in the 2008-2009 financial crisis, macroprudential regulations in the mortgage market, and student loans. The opinions here are my own and do not necessarily reflect the position of the Federal Reserve Bank of San Francisco or the Federal Reserve System.
Revise and resubmit at the Journal of Finance
How much did shocks to household credit supply reduce employment in the Great Recession? To answer this, I provide a general foundation for shift-share credit supply shocks, showing that they are useful for bounding partial equilibrium aggregate eﬀects but direct estimates may be biased. Combining the shocks with a natural experiment addresses the bias and shows contractions in credit supply to households reduced local economic activity, with one standard deviation decline in the shock reducing employment by 3 percent. Aggregating these eﬀects implies the household credit channel can explain employment losses of at least 20 percent of the aggregate decline.
with Anthony DeFusco
Forthcoming at the Journal of Finance
We study how employment documentation requirements and out-of-pocket closing costs constrain mortgage reﬁnancing. These frictions, which bind most severely during recessions, may signiﬁcantly inhibit monetary policy pass-through. To study their eﬀects on reﬁnancing, we exploit an FHA policy change that excluded unemployed borrowers from reﬁnancing and increased others’ out-of-pocket costs substantially. These changes dramatically reduced reﬁnancing rates, particularly among the likely unemployed and those facing new out-of-pocket costs. Our results imply that unemployed and liquidity-constrained borrowers have a high latent demand for reﬁnancing. Cyclical variation in these factors may therefore aﬀect both the aggregate and distributional consequences of monetary policy.
Forthcoming at the Review of Economic Studies
This paper studies how credit markets respond to policy constraints on household leverage. Exploiting a sharp policy-induced discontinuity in the cost of originating certain high-leverage mortgages, we study how the Dodd-Frank “Ability-to-Repay” rule affected the price and availability of credit in the U.S. mortgage market. Our estimates show that the policy had only moderate effects on prices, increasing interest rates on affected loans by 10-15 basis points. The effect on quantities, however, was signiﬁcantly larger; we estimate that the policy eliminated 15 percent of the affected market completely and reduced leverage for another 20 percent of remaining borrowers. This reduction in quantities is much greater than would be implied by plausible demand elasticities and suggests that lenders responded to the policy primarily by rationing credit. Finally, while the policy succeeded in reducing leverage, our estimates suggest this effect would have only slightly reduced aggregate default rates during the housing crisis.
Forthcoming at the Journal of the European Economic Association
Using household-level debt data over 2000-2012 and local variation in inequality, we show that low-income households in high-inequality regions (zip-codes, counties, states) accumulated less debt relative to their income than low-income households in lower-inequality regions. We also find evidence that low-income households face higher credit prices and reduced access to credit as inequality increases. We argue that these patterns are consistent with inequality tilting credit supply away from low-income households and toward high-income households, which may have long-run implications for outcomes like homeownership or entrepreneurship.
Work in Progress
The Housing Crisis and the Rise in Student Loans
(draft coming soon)
We study if the changes in U.S. house prices over the 2000s aﬀected growth in student loans. Using household-level panel survey data, we ﬁnd that as home prices fall households depend less on home equity extraction to ﬁnance college enrollment and depend more on student loans. We estimate that for every lost dollar of home equity credit that would have been used to ﬁnance college enrollment, households increase student loan debt by forty to sixty cents. This substitution appears to be driven primarily by households with low levels of liquid assets. We extend our analysis with credit bureau data to trace longer-run eﬀects of this leverage on students. Our results show that the decline in house prices reduced households’ ability to ﬁnance college enrollment with home equity credit, but that constrained households mostly responded by continuing to enroll in college and relying on student loans. Our estimates suggests the 30% fall in house prices from the 2006 peak resulted in the average college student borrowing an additional $1,300 in student loans, with some evidence of larger eﬀects on liquidity-constrained and less-educated households.
Default and Deleveraging in the Business Cycle
with Stephen Terry
Sources of Heterogeneity in Retail Price-Setting Behavior