Household Discount Rate Heterogeneity and Policy Transmission with Pulak Ghosh, Charles Parry, and Constantine Yannelis
Abstract: Discount rates are central to households' investment, consumptions and savings choices, and are a key determinant of aggregate spending and growth. We develop an empirical menu approach to identifying individual's discount rates. In making credit choices, consumers are often faced with decisions consisting of maturity and interest rate choices. We show that using the structure of consumers' preferences, consumers' maturity choices are informative about their discount rates as more patient consumers pick longer-maturities with more favorable rates. We estimate discount rates using a financial choice which trades-off smaller cashflows in the short term against larger cash flows in the future-the choice of bank time deposits and 182,540 term choices made by 46,746 account holders at a large Indian bank. We estimate an average discount rate of 11.6% and exhibit significant heterogeneity. Estimated discount rate predict savings and portfolio choices, as well as stock market participation. Discount rates rise during economic contractions, consistent with Keynesian theory. Individuals with higher discount rates invest more in equities following monetary policy loosening, suggesting that discount rate heterogeneity can play a role in monetary policy passthrough.
Municipal Financing and Monetary Policy Transmission with Igor Cunha
Abstract: We study the transmission of monetary policy through bond markets into the real economy. Our novel identification strategy exploits predetermined variation in the timing of municipal bond callability during the 2008 Federal Reserve easing cycle. Issuers unconstrained by callability timing pass lower borrowing costs through to greater refinancing, issuance, and investment. We trace these responses through to local outcomes, recovering measurable gains in income and reductions in unemployment. Our findings highlight the significant role of bond callability in shaping monetary policy transmission through bond markets and its aggregate consequences for local economies.
Contractual Lock-In: Mortgage Prepayment Penalties and Mobility
Abstract: Do prepayment penalties lock-in borrowers, reducing mobility? Using monthly mortgage performance and borrower panel data, I study mobility before and after the expiration date of prepayment penalties. I find that borrowers increase mobility once the penalty expires: a penalty expiration leads to a 38% higher moving rate post-expiration relative to baseline moving rates in my sample. These expiration induced moves are to places with higher economic opportunities: the effect is just as strong for small and long distance moves and the moves are disproportionately to zipcodes with high levels of average income and high levels of upward income mobility. I then study what can explain these effects on mobility. I find that housing equity at the time the penalty expires is an important input into the mobility response of borrowers: very low and underwater LTV borrowers responses are muted, while most of the response comes from high, but <100 LTV borrowers. I interpret this finding to be consistent with credit constraints stemming from the housing market being an important financial friction to household mobility. These results imply that mortgage contract features can interact with credit market imperfections that result in large frictions to moves that would otherwise improve economic circumstances, even when borrowers are above water on their mortgage.
Awards
Stigler Center Ph.D. Dissertation Award and Bradley Fellow
John and Serena Liew Fama-Miller Research Grant
Does Luring Individuals Mean Luring Investment? Examining Tax-Induced Migration to Puerto Rico with Lucy Msall
Is Prepayment Risk Passed Through to Borrowers?