Heterogeneity in Macro-Finance
This research group belongs to the IWH Research Cluster Macroeconomic Dynamics and Stability. The interaction between the distribution of income and wealth and the dynamics of aggregate macroeconomic variables is currently poorly understood. In part this is related to the computational difficulties of developing macro models with heterogeneous agents and departing from the representative agent paradigm. Empirically, the difficulty lies in identifying causal relationships using micro data and in aggregating the micro evidence to macroeconomic outcomes. This research group aims at better understanding the links between heterogeneity of individuals and firms and macroeconomic aggregates both on an empirical and on a theoretical level. Furthermore, there is a growing interest in the distributional effects of macroeconomic development and economic policy.
Research ClusterMacroeconomic Dynamics and Stability
Banks' Financial Distress, Lending Supply and Consumption Expenditure
in: SAFE Working Paper Series, No. 39 , No. 39, 2014
We employ a unique identification strategy linking survey data on household consumption expenditure to bank-level data to estimate the effects of bank financial distress on consumer credit and consumption expenditures. We show that households whose banks were more exposed to funding shocks report lower levels of non-mortgage liabilities. This, however, does not result in lower levels of consumption. Households compensate by drawing down liquid assets to smooth consumption in the face of a temporary adverse lending supply shock. The results contrast with recent evidence on the real effects of finance on firms’ investment and employment decisions.
Did Consumers Want Less Debt? Consumer Credit Demand versus Supply in the Wake of the 2008-2009 Financial Crisis
in: SAFE Working Paper Series, No. 42 , No. 42, 2014
We explore the sources of household balance sheet adjustment following the collapse of the housing market in 2006. First, we use microdata from the Federal Reserve Board’s Senior Loan Officer Opinion Survey to document that banks cumulatively tightened consumer lending standards more in counties that experienced a house price boom in the mid-2000s than in non-boom counties. We then use the idea that renters, unlike homeowners, did not experience an adverse wealth shock when the housing market collapsed to examine the relative importance of two explanations for the observed deleveraging and the sluggish pickup in consumption after 2008. First, households may have optimally adjusted to lower wealth by reducing their demand for debt and implicitly, their demand for consumption. Alternatively, banks may have been more reluctant to lend in areas with pronounced real estate declines. Our evidence is consistent with the second explanation. Renters with low risk scores, compared to homeowners in the same markets, reduced their levels of nonmortgage debt and credit card debt more in counties where house prices fell more. The contrast suggests that the observed reductions in aggregate borrowing were more driven by cutbacks in the provision of credit than by a demand-based response to lower housing wealth.