IDEAS home Printed from https://ideas.repec.org/a/oup/qjecon/v128y2013i4p1687-1726.html
   My bibliography  Save this article

Household Balance Sheets, Consumption, and the Economic Slump

Author

Listed:
  • Atif Mian
  • Kamalesh Rao
  • Amir Sufi

Abstract

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 elasticity of 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. Copyright 2013, Oxford University Press.

Suggested Citation

  • Atif Mian & Kamalesh Rao & Amir Sufi, 2013. "Household Balance Sheets, Consumption, and the Economic Slump," The Quarterly Journal of Economics, Oxford University Press, vol. 128(4), pages 1687-1726.
  • Handle: RePEc:oup:qjecon:v:128:y:2013:i:4:p:1687-1726
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/qje/qjt020
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Morris M. Kleiner & Alan B. Krueger, 2010. "The Prevalence and Effects of Occupational Licensing," British Journal of Industrial Relations, London School of Economics, pages 676-687.
    2. Vincenzo Quadrini & Fabrizio Perri, 2010. "International recessions," 2010 Meeting Papers 222, Society for Economic Dynamics.
    3. Atila Abdulkadiro?lu & Yeon-Koo Che & Yosuke Yasuda, 2015. "Expanding "Choice" in School Choice," American Economic Journal: Microeconomics, American Economic Association, pages 1-42.
    4. David E. Card & David S. Lee & Zhuan Pei & Andrea Weber, 2012. "Nonlinear Policy Rules and the Identification and Estimation of Causal Effects in a Generalized Regression Kink Design," NRN working papers 2012-14, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.
    5. Holzer, Harry J, 1988. "Search Method Use by Unemployed Youth," Journal of Labor Economics, University of Chicago Press, vol. 6(1), pages 1-20, January.
    6. Dale T. Mortensen, 1977. "Unemployment Insurance and Job Search Decisions," ILR Review, Cornell University, ILR School, pages 505-517.
    7. Morris M. Kleiner & Alan B. Krueger, 2010. "The Prevalence and Effects of Occupational Licensing," British Journal of Industrial Relations, London School of Economics, pages 676-687.
    8. Jesse Rothstein, 2011. "Unemployment Insurance and Job Search in the Great Recession," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, pages 143-213.
    9. Gautier, Pieter A. & Muller, Paul & van der Klaauw, Bas & Rosholm, Michael & Svarer, Michael, 2012. "Estimating Equilibrium Effects of Job Search Assistance," IZA Discussion Papers 6748, Institute for the Study of Labor (IZA).
    10. Landais, Camille & Michaillat, Pascal & Saez, Emmanuel, 2010. "Optimal unemployment insurance over the business cycle," LSE Research Online Documents on Economics 35596, London School of Economics and Political Science, LSE Library.
    11. Jackson, Matthew O. & Manelli, Alejandro M., 1997. "Approximately Competitive Equilibria in Large Finite Economies," Journal of Economic Theory, Elsevier, vol. 77(2), pages 354-376, December.
    12. Katz, Lawrence F. & Meyer, Bruce D., 1990. "The impact of the potential duration of unemployment benefits on the duration of unemployment," Journal of Public Economics, Elsevier, pages 45-72.
    13. Echenique, Federico & Oviedo, Jorge, 2006. "A theory of stability in many-to-many matching markets," Theoretical Economics, Econometric Society, pages 233-273.
    14. Zhi Da & Joseph Engelberg & Pengjie Gao, 2011. "In Search of Attention," Journal of Finance, American Finance Association, vol. 66(5), pages 1461-1499, October.
    15. Johannes F. Schmieder & Till von Wachter & Stefan Bender, 2011. "The Longterm Effects of UI Extensions on Employment," Boston University - Department of Economics - Working Papers Series WP2011-064, Boston University - Department of Economics.
    16. Johannes F. Schmieder & Till von Wachter & Stefan Bender, 2012. "The Long-Term Effects of UI Extensions on Employment," American Economic Review, American Economic Association, pages 514-519.
    17. Aytek Erdil & Haluk Ergin, 2007. "What`s the Matter with Tie-breaking? Improving Efficiency in School Choice," Economics Series Working Papers 349, University of Oxford, Department of Economics.
    18. Robert Shimer & Iván Werning, 2007. "Reservation Wages and Unemployment Insurance," The Quarterly Journal of Economics, Oxford University Press, pages 1145-1185.
    19. Ning Sun & Zaifu Yang, 2006. "Equilibria and Indivisibilities: Gross Substitutes and Complements," Econometrica, Econometric Society, vol. 74(5), pages 1385-1402, September.
    20. Card, David & Levine, Phillip B., 2000. "Extended benefits and the duration of UI spells: evidence from the New Jersey extended benefit program," Journal of Public Economics, Elsevier, pages 107-138.
    21. Manea, Mihai, 2009. "Asymptotic ordinal inefficiency of random serial dictatorship," Theoretical Economics, Econometric Society.
    22. Peter Kuhn & Hani Mansour, 2014. "Is Internet Job Search Still Ineffective?," Economic Journal, Royal Economic Society, vol. 124(581), pages 1213-1233, December.
    23. Bound, John & Krueger, Alan B, 1991. "The Extent of Measurement Error in Longitudinal Earnings Data: Do Two Wrongs Make a Right?," Journal of Labor Economics, University of Chicago Press, vol. 9(1), pages 1-24, January.
    24. Yeon-Koo Che & Fuhito Kojima, 2010. "Asymptotic Equivalence of Probabilistic Serial and Random Priority Mechanisms," Econometrica, Econometric Society, pages 1625-1672.
    25. Milgrom,Paul, 2004. "Putting Auction Theory to Work," Cambridge Books, Cambridge University Press, number 9780521536721, December.
    26. Peter Kuhn & Mikal Skuterud, 2004. "Internet Job Search and Unemployment Durations," American Economic Review, American Economic Association, pages 218-232.
    27. Robert Shimer & Iván Werning, 2007. "Reservation Wages and Unemployment Insurance," The Quarterly Journal of Economics, Oxford University Press, pages 1145-1185.
    28. Dora L. Costa & Matthew E. Kahn, 2000. "Power Couples: Changes in the Locational Choice of the College Educated, 1940–1990," The Quarterly Journal of Economics, Oxford University Press, pages 1287-1315.
    29. Alan B. Krueger & Andreas Mueller, 2011. "Job Search, Emotional Well-Being and Job Finding in a Period of Mass Unemployment: Evidence from High-Frequency Longitudinal Data," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, pages 1-81.
    30. Card, David & Levine, Phillip B., 2000. "Extended benefits and the duration of UI spells: evidence from the New Jersey extended benefit program," Journal of Public Economics, Elsevier, pages 107-138.
    31. Bruce D. Meyer & Wallace K. C. Mok, 2007. "Quasi-Experimental Evidence on the Effects of Unemployment Insurance from New York State," NBER Working Papers 12865, National Bureau of Economic Research, Inc.
    32. Katz, Lawrence F. & Meyer, Bruce D., 1990. "The impact of the potential duration of unemployment benefits on the duration of unemployment," Journal of Public Economics, Elsevier, pages 45-72.
    33. Vlastakis, Nikolaos & Markellos, Raphael N., 2012. "Information demand and stock market volatility," Journal of Banking & Finance, Elsevier, vol. 36(6), pages 1808-1821.
    34. Krueger, Alan B. & Mueller, Andreas, 2010. "Job search and unemployment insurance: New evidence from time use data," Journal of Public Economics, Elsevier, pages 298-307.
    35. Aytek Erdil & Haluk Ergin, 2008. "What's the Matter with Tie-Breaking? Improving Efficiency in School Choice," American Economic Review, American Economic Association, pages 669-689.
    36. Betsey Stevenson, 2009. "The Internet and Job Search," NBER Chapters,in: Studies of Labor Market Intermediation, pages 67-86 National Bureau of Economic Research, Inc.
    37. Matthew E. Kahn & Matthew J. Kotchen, 2010. "Environmental Concern and the Business Cycle: The Chilling Effect of Recession," NBER Working Papers 16241, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:qjecon:v:128:y:2013:i:4:p:1687-1726. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) or (Christopher F. Baum). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.