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HH-1: Household Consumption-Debt Behavior
Expectations Uncertainty and Household Economic Behavior
1Federal Reserve Board, United States of America; 2Ohio State University; 3University of North Carolina
We show that there exists significant heterogeneity across US households in how uncertain they are in their expectations regarding personal and macroeconomic outcomes, and that uncertainty in expectations predicts households' choices. Individuals with lower income or education, more precarious finances, and living in counties with higher unemployment are more uncertain in their expectations regarding own-income growth, inflation, and national home price changes. People with more uncertain expectations, even accounting for their socioeconomic characteristics, exhibit more precaution in their consumption, credit, and investment behaviors.
Crowdsourcing Financial Information to Change Spending Behavior
1Boston College, United States of America; 2University of Maryland; 3University of Chicago
We document five effects of providing individuals with crowdsourced spending information about their peers (individuals with similar demographics) through a FinTech app. First, users that overspend with respect to peers reduce their spending significantly whereas users that underspend keep constant or increase their spending. Second, users' distance from their peers' spending affects the reaction monotonically in both directions. Third, users' reaction is severely asymmetric -- spending cuts are three times as large as increases. Fourth, lower income users react more than others. Fifth, discretionary spending drives the reaction in both directions and especially cash withdrawals, which are commonly used for incidental expenses and anonymous transactions. We argue none of Bayesian updating, peer pressure, or the fact that bad news loom more than (equally-sized) good news alone can explain all these facts.
Shocked by Bank Funding Shocks: Evidence from Consumer Credit Cards
1Georgia Institute of Technology, United States of America; 2Emory University, United States of America
We examine the transmission of an unexpected sharp decline in banks' short-term wholesale funding availability in 2008 to their consumers using a comprehensive matched bank -- borrower data set. For the same consumer borrowing from two different credit card issuers, a 10% reduction in the bank's wholesale funding leads to a reduction of 0.74% in credit card limits for its borrowers. Consumers could not completely hedge away the liquidity shock transmitted by their banks, leading to a 0.36% reduction in aggregate credit card consumption for a 1% reduction in aggregate credit card limits. The effects are more severe (0.68--1.54%) for credit-constrained consumers with lower credit scores and higher credit card utilization ratios in the short-run and the long-run. We confirm our primary results on the full universe of approximately 500 million credit cards. Our results suggest that the structure of a bank's balance sheet impacts their consumers, with banks transmitting their funding shocks to consumers through credit cards, thus affecting aggregate credit card consumption.
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