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Response of Consumer Debt to Income Shocks: The Case of Energy Booms and Busts

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  • JASON P. BROWN

Abstract

Consumer debt is an important vehicle for smoothing through income shocks. I study localized income shocks from oil and gas development to investigate consumer response. Using quarterly information on consumer debt and oil and gas activity between 2000 and 2016, I find that consumer debt increased at a peak of $660 per capita, equivalent to 1.3% of median household income in counties with shale endowment and increased drilling. Shocks to local wages via drilling revealed a marginal propensity to borrow of 0.45. Relative to areas with oil and gas development experience, the marginal propensity to borrow was two times larger in previously undeveloped areas.

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  • Jason P. Brown, 2021. "Response of Consumer Debt to Income Shocks: The Case of Energy Booms and Busts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(7), pages 1629-1675, October.
    • Handle: RePEc:wly:jmoncb:v:53:y:2021:i:7:p:1629-1675
    DOI: 10.1111/jmcb.12842
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    2. Cookson, J. Anthony & Gilje, Erik P. & Heimer, Rawley Z., 2022. "Shale shocked: Cash windfalls and household debt repayment," Journal of Financial Economics, Elsevier, vol. 146(3), pages 905-931.
    3. Daniel Berkowitz & Andrew J. dup Boslett & Jason Brown & Jeremy G. Weber, 2022. "Rational but Not Prescient: Borrowing during the Fracking Boom," Research Working Paper RWP 2022-05, Federal Reserve Bank of Kansas City.
    4. Chen, Jianyu & Zhang, Jianshun, 2023. "Crude oil price shocks, volatility spillovers, and global systemic financial risk transmission mechanisms: Evidence from the stock and foreign exchange markets," Resources Policy, Elsevier, vol. 85(PB).
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    More about this item

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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