Working Papers
Consumer Durables and the Distributional Effects of Credit Supply Shocks
Job Market Paper [Click here for the latest version.]
This paper studies the aggregate impacts and distributional implications of nonbank credit supply shocks on consumer durable goods expenditures by quantifying the contribution of credit supply shocks to the collapse of the U.S. auto sales during the Great Recession. Motivated by the fact that subprime auto lending is concentrated on nonbank lenders and it declined dramatically from nonbank lenders vis-à-vis banks, I embed a novel ingredient of lender choices into a general equilibrium model with heterogeneous households and lenders. The estimated model is able to generate sizable decline of auto sales triggered by nonbank credit supply shocks and income shocks. Notably, the model attributes approximately 37% of the decline in auto sales during the Great Recession to the nonbank credit supply shock, whereas a bank credit supply shock of the same magnitude would have contributed merely 0.28%. Moreover, my analysis highlights different distributional implications of bank and nonbank credit supply shocks through a new mechanism: asymmetric ability to borrow. This asymmetric borrowing ability captures how riskier (nonbank) borrowers cannot freely switch to bank loans when a nonbank shock occurs, whereas safer (bank) borrowers are able to switch to nonbank financing with little increase in loan rates. This negatively affects nonbank borrowers' car purchasing behaviors but not those of bank borrowers. My analysis casts light on the effectiveness of Term Asset-Backed Securities Loan Facility (TALF), the emergency lending program that alleviated panic in the Asset Backed Securities market during the Great Recession.
Job Market Paper [Click here for the latest version.]
This paper studies the aggregate impacts and distributional implications of nonbank credit supply shocks on consumer durable goods expenditures by quantifying the contribution of credit supply shocks to the collapse of the U.S. auto sales during the Great Recession. Motivated by the fact that subprime auto lending is concentrated on nonbank lenders and it declined dramatically from nonbank lenders vis-à-vis banks, I embed a novel ingredient of lender choices into a general equilibrium model with heterogeneous households and lenders. The estimated model is able to generate sizable decline of auto sales triggered by nonbank credit supply shocks and income shocks. Notably, the model attributes approximately 37% of the decline in auto sales during the Great Recession to the nonbank credit supply shock, whereas a bank credit supply shock of the same magnitude would have contributed merely 0.28%. Moreover, my analysis highlights different distributional implications of bank and nonbank credit supply shocks through a new mechanism: asymmetric ability to borrow. This asymmetric borrowing ability captures how riskier (nonbank) borrowers cannot freely switch to bank loans when a nonbank shock occurs, whereas safer (bank) borrowers are able to switch to nonbank financing with little increase in loan rates. This negatively affects nonbank borrowers' car purchasing behaviors but not those of bank borrowers. My analysis casts light on the effectiveness of Term Asset-Backed Securities Loan Facility (TALF), the emergency lending program that alleviated panic in the Asset Backed Securities market during the Great Recession.
Rationalizing Trading Frequency and Returns: Maybe Trading is Good for you
joint with Russell Cooper and Yosef Bonaparte, No. w25838. National Bureau of Economic Research.[pdf]
Previous literature attributes the pattern that households who trade more have a lower net return to irrationality, particularly overconfidence. In contrast, we find that household financial choices generated from a dynamic optimization problem with rational agents and portfolio adjustment costs can reproduce the observed pattern of households with large turnover having lower net returns. Various forms of irrationality, modeled as beliefs about income and return processes that are not data based, do not improve the ability of the baseline model to explain these turnover and net returns patterns.
joint with Russell Cooper and Yosef Bonaparte, No. w25838. National Bureau of Economic Research.[pdf]
Previous literature attributes the pattern that households who trade more have a lower net return to irrationality, particularly overconfidence. In contrast, we find that household financial choices generated from a dynamic optimization problem with rational agents and portfolio adjustment costs can reproduce the observed pattern of households with large turnover having lower net returns. Various forms of irrationality, modeled as beliefs about income and return processes that are not data based, do not improve the ability of the baseline model to explain these turnover and net returns patterns.