I study how debt relief impacts household saving and consumption compared to cash transfers by analyzing borrower responses to federal student loan forbearance in the 2020 CARES Act. Using a daily financial transactions panel, I find that borrowers manage liquidity from the payment pause non-optimally, with many making large voluntary prepayments on 0%-interest student debt instead of repaying high-interest obligations. By contrast, these borrowers correctly prioritize repaying high-interest debt when receiving direct stimulus payments. This suggests a flypaper effect causing borrowers to treat liquidity from debt relief as non-fungible with other windfalls. As such an effect predicts, borrowers have a marginal propensity to spend (MPX) out of forbearance liquidity less than half the size of their MPX out of direct stimulus payments. I survey student borrowers to understand the mechanisms driving non-fungibility, and formally incorporate results into an incomplete-markets lifecycle model. The flypaper effect in the modified model has quantitatively large impacts on the effectiveness and cost of forbearance as a countercyclical fiscal policy tool and has implications for debates about student debt forgiveness.
Firms offering "buy now, pay later" (BNPL) point-of-sale installment loans with minimal underwriting and low interest have captured a growing fraction of the market for short-term unsecured consumer credit. We provide a detailed look into the US BNPL market by constructing a large panel of BNPL users from transaction-level data. We document characteristics of users and usage patterns, and use BNPL roll-out to provide new insights into consumer responses to unsecured credit access. BNPL access increases both total spending levels and the retail share in total spending, with magnitudes too large for standard intertemporal and static substitution effects to explain. These findings hold for consumers with and without inferred liquidity constraints. Our findings are more consistent with a "liquidity flypaper effect" where additional retail liquidity through BNPL "sticks where it hits", than a standard lifecycle model with liquidity constraints.
This paper uses mutual fund manager data to examine how managers' performance incentives generated speculative demand during the 2020-2022 cryptocurrency boom and bust. We find that managers with strong relative performance incentives began investing in crypto after their competitors began investing in it, consistent with a model of rational performance hedging. In contrast, managers who invest their personal wealth in the funds that they manage, who have strong direct performance incentives, were significantly less responsive to their competitors' investment decisions. Our findings suggest that relative performance incentives can encourage managers to mimic their competitors instead of trading on their beliefs. In equilibrium, this competitive hedging motive can magnify the scope of speculative demand.
Click here to download a pdf version of my CV (updated June 2023)
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