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Household Credit and Local Economic Uncertainty

45 Pages Posted: 4 Aug 2017  

Marco Di Maggio

Harvard Business School; National Bureau of Economic Research (NBER)

Amir Kermani

University of California, Berkeley; National Bureau of Economic Research (NBER)

Rodney Ramcharan

University of Southern California, Marshall School of Business

Edison G. Yu

Federal Reserve Bank of Philadelphia

Multiple version iconThere are 2 versions of this paper

Date Written: 2017-08-03

Abstract

This paper investigates the impact of uncertainty on consumer credit outcomes. We develop a local measure of economic uncertainty capturing county-level labor market shocks. We then exploit microeconomic data on mortgages and credit-card balances together with the crosssectional variation provided by our uncertainty measure to show strong borrower-specific heterogeneity in response to changes in uncertainty. Among high risk borrowers or areas with more high risk borrowers, increased uncertainty is associated with housing market illiquidity and a reduction in leverage. For low risk borrowers, these effects are absent and the cost of mortgage credit declines, suggesting that lenders reallocate credit towards safer borrowers when uncertainty spikes. A similar pattern is observed in the unsecured credit market. Taken together, local uncertainty might independently affect aggregate economic activity through consumer credit markets and could engender greater inequality in consumption and housing wealth accumulation across households.

Keywords: consumer credit, mortgages, credit cards, lending practices

JEL Classification: D14, D80, E52, G21

Suggested Citation

Di Maggio, Marco and Kermani, Amir and Ramcharan, Rodney and Yu, Edison G., Household Credit and Local Economic Uncertainty (2017-08-03). FRB of Philadelphia Working Paper No. 17-21. Available at SSRN: https://ssrn.com/abstract=3013556

Marco Di Maggio (Contact Author)

Harvard Business School ( email )

Boston, MA 02163
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Amir Kermani

University of California, Berkeley ( email )

2220 Piedmont Ave
Berkeley, CA 94720
United States

HOME PAGE: http://faculty.haas.berkeley.edu/amir/research/research.html

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Rodney Ramcharan

University of Southern California, Marshall School of Business ( email )

Los Angeles, CA 90089
United States

HOME PAGE: http://https://sites.google.com/site/rodneyramcharan/

Edison G. Yu

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

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