The surprisingly low importance of income uncertainty for precaution (forthcoming in European Economic Review)
Abstract: While it is common to use income uncertainty to explain household saving decisions, there is much disagreement about the importance of precautionary saving. This paper suggests that income uncertainty is not an important motive for saving, although households do have other precautionary reasons to save. Using a question from the Survey of Consumer Finances that asks how much households want for precautionary purposes, this paper shows that expressed household preferences, and liquid savings, are much lower than predicted by standard modeling assumptions. Households rarely list unemployment as a reason to save. Perceived income uncertainty does not affect liquid savings or precautionary preferences. Neither does being in an occupation with higher income volatility. Instead, households seem very concerned with expenditure shocks.
How important are banks for development? National banks in the United States 1870--1900 (forthcoming in Review of Economics and Statistics)
Abstract: What financial services matter for growth? This paper examines the effects national banks had on growth in the United States from 1870-1900. These banks were commercial not investment banks: they made short term loans and could not take land as collateral. I use the discontinuity in entry caused by a large minimum capital requirement to identify the effects of banking. Counties getting a bank increased production per person substantially and tilted production towards agriculture over manufacturing by expanding land under cultivation, not improving yields. The effects are highly persistent and show that the commercial activities of banks matter for growth.
How important is variability in consumer credit limits? (Journal of Monetary Economics. 72:42-63. May 2015. Also as Federal Reserve Bank of Boston WP 14-8, BC working paper 754)
Abstract: Using a large panel this paper first demonstrates that individuals gain and lose access to credit frequently. The estimated credit limit volatility is larger than most estimates of income volatility and varies over the business cycle. Within a model, variable credit limits create a reason for households to hold both high interest debts and low interest savings at the same time. Using the estimated credit volatility, the model explains why around one third of American households engage in this credit card puzzle. The approach also offers an important new channel through which financial system uncertainty can affect household decisions.
MarketWatch: This is why people carry credit card balances
CreditCards.com: How cutting credit limits hurts cardholders, the economy
Abstract: In India both men and women with more education live in households with greater consumption per capita. Yet aggregating across age cohorts and states, an extra year of education brings male cohorts only 4% more consumption and provides no additional consumption for female cohorts. This result is robust to: (1) accounting for survey measurement error, (2) different measures of household consumption and composition, (3) allowing returns to differ by state and school quality, and (4) age misreporting. The only area with substantial returns is entering into regular wage work which still employs only a small fraction of the population.
The effects of financial development in the short and long run (Journal of Development Economics, 104:56-72. September 2013. Also as BC working paper 741)
Abstract: Although many view financial access as a means of reducing poverty or increasing growth, empirical studies have produced contradictory results. One problem is that most studies cover only a short time frame and do not consider dynamic effects. I show that introducing credit in a general model of intertemporal consumption creates a boom in consumption and reduces poverty initially, but eventually reduces mean consumption because credit substitutes for precautionary wealth. Using new consistent consumption data that cover a much longer time period than most studies, my empirical findings show that increased access to bank branches in rural India increased consumption initially and reduced poverty, but consumption later fell and poverty rose. The long-term effect is still positive, however, suggesting that credit may have a beneficial role beyond consumption smoothing.
Does It Matter Where You Came From? Ancestry Composition and Economic Performance of U.S. Counties, 1850 – 2010 (with Ivan Petkov and Fabio Schiantarelli)
Abstract: The United States provides a unique laboratory for understanding how the cultural, institutional, and human capital endowments of immigrant groups shape economic outcomes. In this paper, we use census micro-sample information to reconstruct the country-of-ancestry distribution for US counties from 1850 to 2010. We also develop a county-level measure of GDP per capita over the same period. Using this novel panel data set, we investigate whether changes in the ancestry composition of a county matter for local economic development and the channels through which the cultural, institutional, and educational legacy of the country of origin affects economic outcomes in the US. Our results show that the evolution of the country-of-origin composition of a county matters. Moreover, the culture, institutions, and human capital that the immigrant groups brought with them and pass on to their children are positively associated with local development in the US. Among these factors, measures of culture that capture attitudes towards cooperation play the most important and robust role. Finally, our results suggest that while fractionalization of ancestry groups is positively related with county GDP, fractionalization in attributes such as trust, is negatively related to local economic performance.
Abstract: Do households use savings to buffer against income fluctuations? Despite its common use to understand household savings decisions, the evidence for the buffer-stock model is surprisingly weak and inconsistent. This paper develops new testable implications based on a property of the model that the assets that households target for precautionary reasons should encapsulate all preferences and risks and the target should scale one for one with permanent income. I test these implications using the Survey of Consumer Finances in the United States. Those with incomes over $60,000 fit the model predictions very well, but below $60,000 households become increasingly precautionary. Income uncertainty is unrelated to the level of precaution. Moreover, households hold substantially weaker precautionary tendencies than standard models with yearly income shocks predict. Instead I propose and estimate a model of monthly disposable income shocks and a minimum subsistence level that can accommodate these findings.
Abstract: We examine a period during the prevalence of the gold standard in the United States to provide evidence that speculation about a currency peg can have damaging effects on bank balance sheets. In particular, the defeat of the pro-silver candidate in the 1896 presidential election was associated with a large and permanent increase in bank leverage, with the initial impact most pronounced among states where banks held more specie in proportion to their assets and were, therefore, also more committed to paying out deposits in specie. Based on the cross-sectional pattern of changes in leverage observed in 1896, we construct a measure of the credibility of the gold standard spanning the entire sample period. Changes in this measure correlate with changes in aggregate bank leverage, suggesting that uncertainty about the monetary standard played an important role in the 1893 banking panic and its aftermath.
Marriage migration in India: Vast, varied, and misunderstood (also circulated as: The Puzzle of Marriage Migration in India)
Abstract: Two thirds of all Indian women have migrated for marriage, around 300 million women, but not much is known about this vast migration. This paper provides a detailed accounting of this large migration and evaluates some of its potential causes. Marriage migration varies substantially across India, and appears to have changed little over the previous 40 years. Contrary to conventional wisdom, marriage migration does not contribute to risk sharing or consumption smoothing. Nor is it driven by sex ratio imbalances. Instead, this paper introduces a simple model in which parents must search for a spouse for their daughter geographically. The model helps rationalize the correlations between migration, age of marriage, and literacy across districts in India. It suggests that marriage migration is part of the larger puzzle of low workforce participation, education, and bargaining power of women in India, rather than an independent phenomenon.
Abstract: This paper examines the changing distribution of where women and girls live in India at the smallest possible scale: India's nearly 600,000 villages. Village India is becoming more homogeneous in its preferences for boys even as those preferences becomes more pronounced. A consequence is that more than two thirds of girls now grow up in villages where they are the minority. Most Indian women move on marriage, so parents' sex selection decisions are felt well beyond the village. Yet marriage migration does not have an equalizing influence on sexual imbalances across villages. Linking all villages across two censuses, I show that changes in village infrastructure such as roads, power supplies, or health clinics are not related to changes in child sex. Geographically close villages reinforce each other's preferences. The results suggest that there are no easy policy solutions for addressing the increasing masculinization of Indian society.
Other published work
U.S. Consumer Holdings and Use of $1 Bills (with Claire Greene and William Murdock III. Federal Reserve Bank of Boston Research Data Report 15-1. 2015)
The Wall Street Journal The Boston Fed Has a Pretty Good Idea How Many Dollar Bills You’re Carrying
The Boston Globe: Even in a cash-free era, the $1 bill is still kicking
Where has all the education in India gone? Ideas For India, 18 September 2014.
The tradeoff between children and savings: Banking and fertility in
Abstract: Interview and survey evidence suggests that children act as a form of saving for parents in India. If parents do view children as a form of investment, parents as investors should adjust the share of children in their portfolios in response to a change in the investment environment. A simple model illustrates. Using this insight, this paper examines whether the vast expansion of access to banking in India in the 1980s affected population growth by constructing a spatially consistent data set of Indian districts over three censuses and including information on new bank branches and per capita expenditure. Examining the changes between censuses using spatial error modeling reveals that there is little evidence of adjustments in fertility in response to an increase in the number of bank branches per capita at the district level. An instrumental variables approach shows some evidence that fertility decreased, but the magnitude of the coefficient is not large. Matching 500,000 villages between the 1991 and 2001 censuses shows that changes in access to the post office savings system are not related to fertility. Increased access to financial markets is likely to have little effect on fertility.
Agree to Disagree: Evidence on Forecaster Dispersion (2005)
Abstract: This paper examines the extent of dispersion across forecasters for many different variables. It finds that the dispersion is large. Forecasters do not necessarily make forecasts with zero-mean-errors, but the median forecaster has no bias. Many forecasters are consistently worse than simple univariate forecasting models, and the median forecaster has no value-added. A closer examination of the Romer and Romer (2000) result finds that while the Fed is a good forecaster it is not the best, and when compared to some private forecasters, it is the Fed that receives negative weight, overturning the Romer and Romer (2000) conclusion. Finally, a simple model which allows forecasters to purchase additional precision is developed which suggests that when the importance of forecasting increases, the mean-squared error of forecasters will decrease, while the variance across forecasters may increase or decrease. Using an index of how often inflation is in the news, the predictions of the model are shown to have some empirical backing.