Essays In Household Finance And Macroeconomics Of Heterogeneous Agents

Essays in Household Finance and Macroeconomics of Heterogeneous Agents

This dissertation develops and estimates structural models with heterogeneous agents to understand empirical patterns from micro data that have important aggregate implications. The first two chapters study the aggregate impacts and distributional effects of credit supply shocks from banks and nonbank financial institutions on consumer durable expenditures. Subprime auto lending is concentrated in nonbank lenders. During the Great Recession, nonbank subprime auto lending declined dramatically vis-à-vis banks loans. The first chapter documents these facts and studies in detail how banks and nonbanks offer different loan rate schedules to different borrowers. Motivated by these facts, the second chapter embeds a novel ingredient of endogenous lender choices into a dynamic equilibrium model with heterogeneous households and lenders. The estimated model generates a 21% decline in auto sales triggered by nonbank credit supply shocks and income shocks and attributes approximately 37% of the collapse of the U.S. auto sales during the Great Recession to nonbank credit supply shocks, whereas the contribution of a bank credit supply shock of the same magnitude would have been merely 0.28%. Moreover, this analysis highlights different distributional implications of bank and nonbank credit supply shocks through a new mechanism: asymmetric ability to borrow. This concept captures the limited flexibility in the lender choices of nonbank borrowers, which negatively affects nonbank borrowers' car purchasing behaviors but not those of bank borrowers. Consequently, nonbank credit supply shocks have much larger impacts on durable expenditures, compared to bank shocks. These results cast light on the effectiveness of the Term Asset-Backed Securities Loan Facility (TALF), the emergency lending program that alleviated panic in the asset-backed securities market during the Great Recession: Without this program, auto sales could have dropped substantially more. The third chapter studies the role of overconfidence in households' stock portfolio adjustment decisions. Barber and Odean (2000) find that households who trade stocks more have a lower net return and attribute this pattern to irrationality, specifically 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 distribution of household turnover rates as well as the observed pattern that households with the highest turnover rates have the lowest 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 return patterns.

Handbook of the Economics of Finance

Arbitrage, State Prices and Portfolio Theory / Philip h. Dybvig and Stephen a. Ross / - Intertemporal Asset Pricing Theory / Darrell Duffle / - Tests of Multifactor Pricing Models, Volatility Bounds and Portfolio Performance / Wayne E. Ferson / - Consumption-Based Asset Pricing / John y Campbell / - The Equity Premium in Retrospect / Rainish Mehra and Edward c. Prescott / - Anomalies and Market Efficiency / William Schwert / - Are Financial Assets Priced Locally or Globally? / G. Andrew Karolyi and Rene M. Stuli / - Microstructure and Asset Pricing / David Easley and Maureen O'hara / - A Survey of Behavioral Finance / Nicholas Barberis and Richard Thaler / - Derivatives / Robert E. Whaley / - Fixed-Income Pricing / Qiang Dai and Kenneth J. Singleton.

Essays in Dynamic Household Finance with Heterogeneous Agents