Research Papers
Personal Bankruptcy Protection and Household Debt, with M.Brown and B.Coates
JOB MARKET PAPER
JOB MARKET PAPER
Personal bankruptcy laws protect a fraction of an individual's assets from seizure by unsecured creditors in case of default. An increase in the level of bankruptcy protection diminishes the collateral value of assets, and can therefore reduce borrowers' access to credit. However, it might also increase the demand for credit especially from risk averse borrowers by improving risk-sharing. Using changes in the level of protection across US states and across time, we show that bankruptcy protection laws increase borrowers' holdings of unsecured credit, but leave secured debt -mortgage and auto loans- unchanged. At the same time we find an increase in the interest rate for unsecured credit, but not for other types of credit. The effect is predominantly driven by lower-income areas and regions with higher home ownership concentration, for which an increase in the level of protection explains between 10% and 30% of the growth in their credit card debt. Using detailed individual data, we find no measurable increase in delinquency rates of households in the subsequent three years. These results suggest that changes in bankruptcy protections did not reduce the aggregate level of household debt but they might have affected the composition of borrowing.
House Prices, Collateral and Self-Employment, with M. Adelino and A. Schoar NBER Working Paper 18868
Revise and Resubmit, Journal of Financial Economics
Revise and Resubmit, Journal of Financial Economics
This paper documents the role of the collateral lending channel to facilitate small business starts and self-employment in the period before the financial crisis of 2008. We document that between 2002 and 2007 areas with a bigger run up in house prices experienced a strong increase in employment in small businesses compared to employment in large firms in the same industries. This increase in small business employment was particularly pronounced in (1) industries that need little startup capital and can thus more easily be financed out of increases in housing as collateral; (2) manufacturing industries where goods are shipped over long distances, which rules out that local demand is driving the expansion. We show that this effect is separate from an aggregate demand channel that relies on home equity based borrowing leading to increased demand and employment creation.
Credit Supply and House Prices: Evidence from Mortgage Market Segmentation,with M. Adelino and A. Schoar NBER Working Paper 17832, 2013 online appendix
We show that easier access to credit significantly increases house prices by using exogenous changes in the conforming loan limit as an instrument for lower cost of financing. Houses that become eligible for financing with a conforming loan show an increase in house value of 1.16 dollars per square foot (for an average price per square foot of 220 dollars) and higher overall house prices controlling for a rich set of house characteristics. However, these estimated coefficients are consistent with a local elasticity of house prices to interest rates that is lower than some previous studies proposed (below 10). In addition, loan to value ratios around the conforming loan limit deviate significantly from the common 80 percent norm, which confirms that it is an important factor in the financing choices of home buyers. In line with our interpretation, the results are stronger in the first half of our sample (1998-2001) when the conforming loan limit was more important, given that other forms of financing were less common and substantially more expensive. Results are also stronger in zip codes where personal income growth is low or declining, and in regions with lower elasticity of housing supply
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