Regional Consumption Responses and the Aggregate Fiscal Multiplier

Dupor, Bill; Karabarbounis, Marios; Kudlyak, Marianna; Mehkari, M. Saif

doi:10.21144/wp18-04

Cited by 4 publications

(4 citation statements)

References 46 publications

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“…Therefore, if wages are rigid, then demand shocks can have persistent effects on aggregate slack even if that is not apparent in regional data. The results, therefore, echo Dupor, Karabarbounis, Kudlyak, and Mehkari's (2018) point, that explicitly allowing for regional spillovers can alter how estimates of local effects of shocks extrapolate to aggregate elasticities. The findings in our paper should help inform general equilibrium models, as one component we show to be important empirically is population losses in more affected regions that lead to convergence in economic slack with no response of wages or productivity.…”

Section: Introductionsupporting

confidence: 56%

The Persistent Employment Effects of the 2006-09 U.S. Housing Wealth Collapse

Bhattarai¹,

Schwartzman²,

Yang³

2019

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We show that the 2006-09 US housing crisis had scarring local effects. For a given county, a 10% reduction in housing wealth from 2006 through 2009 led to a 3.3% decline in employment by 2018, and a commensurate decline in value added. This persistent effect occurred despite the shock having no significant impact on labor productivity and only a short-lived impact on household demand, house prices, and household leverage. We find that the local labor market adjustment to the housing shock was particularly costly: local wages did not respond, and longrun convergence in the local labor market slack instead took place entirely through population losses in affected regions. These results on population adjustment leading to mean-reversion in local slack extend the seminal observations by Blanchard and Katz (1992) to the effects of a temporary and identified local demand shock. Additionally, we show that the housing bust, compared with the housing boom, had asymmetric effects on employment and wages, indicating a role for downward wage rigidity.

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Section: Introductionsupporting

confidence: 56%

The Persistent Employment Effects of the 2006-09 U.S. Housing Wealth Collapse

Bhattarai¹,

Schwartzman²,

Yang³

2019

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“…4 Our model is closer to the model of mortgage default developed by Hatchondo et al [2015]. However, it incorporates (i) default on secured and unsecured debt as in Mitman [2016], (ii) formal and informal default as in Athreya et al [2017], 5 and (iii) five regions, each represented by an heterogeneous-agent model as in Dupor et al [2018].…”

Section: Literature Reviewmentioning

confidence: 88%

Household Financial Distress and the Burden of 'Aggregate' Shocks

Athreya¹,

Mather²,

Mustre-del-Rio³

et al. 2020

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The goal of this paper is to show that household-level financial distress (FD) varies greatly, meaning there is unequal exposure to macroeconomic risk, and that FD can increase macroeconomic vulnerability. To do this, we first establish three facts: (i) regions in the U.S. vary significantly in their "FD-intensity," measured either by how much additional credit households therein can access, or in how delinquent they typically are on debts, (ii) shocks that are typically viewed as "aggregate" in nature hit geographic areas quite differently, and (iii) FD is an economic "pre-existing condition": the share of an aggregate shock borne by a region is positively correlated with the level of FD present at the time of the shock. Using an empirically disciplined and institutionally rich model of consumer debt and default, we show that in the shocks dealt by the Great Recession and in the initial months in the COVID-19 pandemic, FD mattered. Our model implies that the uneven distribution of FD creates widely varying consumption responses to shocks. This is true even when subjecting regions (with differing levels of FD) to the same shocks, which highlights the importance of FD independently of its correlation with shocks.

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“…Finally, our paper speaks to a recent literature in macroeconomics that has emphasized regional variation to macroeconomic shocks in monetary unions. While HPT focuses on European countries, Beraja, Hurst and Ospina (2016); Nakamura and Steinsson (2014); Dupor et al (2018) have studied the consequences of regional fluctuations for both regional and aggregate business cycles in the United States.…”

Section: Introductionmentioning

confidence: 99%

Regional Effects of Exchange Rate Fluctuations

House¹,

Proebsting²,

Tesar³

2019

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and participants of the 50th anniversary of the JMCB conference for helpful suggestions and advice. We gratefully acknowledge financial support from the Michigan Institute for Teaching and Research in Economics (MITRE). The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

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Regional Consumption Responses and the Aggregate Fiscal Multiplier

Cited by 4 publications

References 46 publications

The Persistent Employment Effects of the 2006-09 U.S. Housing Wealth Collapse

The Persistent Employment Effects of the 2006-09 U.S. Housing Wealth Collapse

Household Financial Distress and the Burden of 'Aggregate' Shocks

Regional Effects of Exchange Rate Fluctuations

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