Household Credit and Local Economic Uncertainty

Marco DiMaggio, Amir Kermani, Rodney Ramcharan and Edison Yu
Authors registered in the RePEc Author Service: Marco Di Maggio

No 17-21, Working Papers from Federal Reserve Bank of Philadelphia

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 (search for similar items in EconPapers)
JEL-codes: D14 D80 E52 G21 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2017-08-03
New Economics Papers: this item is included in nep-ban, nep-mac, nep-pay and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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