Daniel P. Murphy

Category: Consumer Spending

  • Work From Home and the Post-COVID Spending Surge

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    Abstract

    U.S. personal saving rates have remained below pre-pandemic levels. This paper links the sustained increase in consumption to the rise of working from home (WFH). Using PSID 2019–2023 data and an industry-based instrument for WFH, I find that households induced to WFH raised expenditure by more than \$7,000 on average, holding income and wealth constant. Spending rose not only among movers but also among non-movers, consistent with a persistent shift in preferences toward housing-complementary consumption. The estimates imply that WFH reduced the aggregate saving rate by 1.2 percentage points, and they suggest that remote work structurally increased demand for housing-related consumption, contributing to the post-pandemic spending boom.

  • A Model of Expenditure Shocks

    with Jorge Miranda-Pinto, Eric R. Young, and Kieran James Walsh
    Journal of Monetary Economics, 154: 103807 Read

    Abstract

    We document four features of consumption and income microdata: (1) household-level consumption is as volatile as household income on average, (2) household-level consumption has a positive but small correlation with income, (3) many low-wealth households have marginal propensities to consume near zero, and (4) lagged high expenditure is associated with low contemporaneous spending propensities. Our interpretation is that household expenditure depends on time-varying consumption thresholds where marginal utility discontinuously increases. Our model with consumption thresholds matches the four facts better than does a standard model. Poor households in our model also exhibit “excess sensitivity” to anticipated income declines.

  • The Heterogeneous Reactions of Household Debt to Income Shocks

    with Nikolaos Koutinidis and Elena Loutskina
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    Abstract

    We study how household debt portfolios-aggregated at the ZIP code level-respond to local income shocks in the United States. We implement two separate identification strategies: (i) a Bartik-style instrument that shifts local earnings via national industry trends, and (ii) a novel instrument utilizing the timing and location of shale oil and gas well discoveries. Across both designs, positive income shocks are, on average, associated with deleveraging. This average, however, masks a sharp bifurcation in financial behavior. Deleveraging in total credit is driven by financially healthier households-those with higher credit scores, higher incomes, or lower leverage-who restrain the growth of credit-card and auto debt. In contrast, financially vulnerable households often treat the windfall as a gateway to new auto credit while still deleveraging credit-card and typically mortgage debt. Looking at mixed-profile households, we find strong mortgage leveraging among households with high income and high debt or low credit scores. These results show that the same income shock can trigger balance-sheet repair for some households and additional leverage for others-varying by both borrower type and debt category-underscoring substantial underlying heterogeneity and highlighting barriers to broad-based financial stability.

  • Home Size, Residential Density, and Aggregate Demand

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    Abstract

    This paper documents that smaller homes and denser neighborhoods are associated with higher household saving rates. This relationship is apparent within and across U.S. households, across countries, and over time in the U.S. The micro data indicate the importance of complementarity between housing and non-housing consumption. Incorporating complementarity into a macroeconomic model implies that denser countries with smaller homes have higher household savings rates, a lower natural rate of interest, and lower sensitivity of non-housing consumption to monetary policy. Furthermore, growth in the non-housing sector alongside stable home sizes is associated with a declining natural rate of interest. High density and small homes may contribute to Japan’s lost decade and persistent stagnation.

  • Fiscal multipliers in the COVID19 recession

    with Alan Auerbach, Yuriy Gorodnichenko, and Peter B. McCrory
    Journal of International Money and Finance, 126, 102669, Read

    Abstract

    In response to the record-breaking COVID19 recession, many governments have adopted unprecedented fiscal stimuli. While countercyclical fiscal policy is effective in fighting conventional recessions, little is known about the effectiveness of fiscal policy in the current environment with widespread shelter-in-place (“lockdown”) policies and the associated considerable limits on economic activity. Using detailed regional variation in economic conditions, lockdown policies, and U.S. government spending, we document that the effects of government spending were stronger during the peak of the pandemic recession, but only in cities that were not subject to strong stay-at-home orders. We examine mechanisms that can account for our evidence and place our findings in the context of other recent evidence from microdata.

  • Fiscal Stimulus and Consumer Debt 

    with Yuliya Demyanyk and Elena Loutskina
    The Review of Economics and Statistics, 101(4), 728–741, Read

    Abstract

    In the aftermath of the consumer debt–induced recession, policymakers have questioned whether fiscal stimulus is effective during periods of high consumer indebtedness. This study empirically investigates this question. Using detailed data on Department of Defense spending for the 2007–2009 period, we document that the open-economy relative fiscal multiplier is higher in geographies with higher consumer debt. The results suggest that in the short term (2007–2009), fiscal policy can mitigate the adverse effect of consumer (over)leverage on real economic output during a recession. We then exploit detailed microdata to show that both heterogeneous marginal propensities to consume and slack-driven economic mechanisms contribute to the debt-dependent multiplier.

  • Home production, expenditure, and economic geography

    Regional Science and Urban Economics, 70, 112-126, Read

    Abstract

    This paper proposes a new microfoundation for the benefits of urban density. Market production of services is efficient because customers effectively share land and other factors of production, leaving them idle for less time. The paper develops a theory in which market-based sharing causes residents of dense areas to purchase services on the market that their suburban counterparts produce at home. The model predicts that residents of dense areas spend more on local services, home produce less, work more, and pay higher land prices – conditional on residents’ productivity and proximity to work. The paper presents evidence that these predictions are consistent with the data.