(with Ronel Elul and Şebnem Kalemli-Özcan)

We quantify the role of heterogeneity in households’ financial constraints in explaining the link between the large decline in aggregate consumption and the decline in house values between 2006 and 2009 using individual-level data. Constraints that are triggered by a decline in house values, and a small fraction of consumers facing particularly severe constraints prior to the decline in house values explain 76\% of the aggregate response. Local general equilibrium feedback and a decline in bank credit to consumers make up the remaining 24\%. We find no contribution of a pure wealth effect in explaining the consumption decline.

First draft  : March 2018

Paper

Most Recent Working Paper  [January 2026]

NBER Working Paper [January 2026]