Our Research Focus

Consumer Finance

We study the borrowing, saving and consumption decisions of American households in order to develop a framework for understanding historical behavior and predicting future patterns. Recent papers have examined mortgage finance markets and the effects of credit contsraints on household decisions.

In this essay, Richmond Fed economist Kartik Athreya discusses the modern approach to consumer finance, from its beginnings in the 1930s, when it was primarily concerned with explaining consumer behavior to the present, where the details of how households rearrange their resources, i.e. "finance," is finally getting its due.

Issue Title Author(s)
Third Quarter 2012 Debit Card Interchange Fee Regulation: Some Assessments and Considerations Zhu Wang
Fourth Quarter 2011 The Cost of Unanticipated Household Financial Shocks: Two Examples Kartik B. Athreya
Urvi Neelakantan
Third Quarter 2010 Earned Income Tax Credit Recipients: Income, Marginal Tax Rates, Wealth, and Credit Constraints Kartik B. Athreya
Devin Reilly
Nicole B. Simpson
Winter 2009 Problems for a Fundamental Theory of House Prices Andreas Hornstein
Winter 2008 Credit Access, Labor Supply, and Consumer Welfare Kartik B. Athreya
Summer 2006 Borrowing by U.S. Households John A. Weinberg
Winter 2006 Credit Exclusion in Quantitative Models of Bankruptcy: Does It Matter? Kartik B. Athreya
Hubert P. Janicki
Spring 2005 Equilibrium Models of Personal Bankruptcy: A Survey Kartik B. Athreya
Spring 2004 Shame As It Ever Was: Stigma and Personal Bankruptcy Kartik B. Athreya
Spring 2003 Unemployment Insurance and Personal Bankruptcy Kartik B. Athreya
Summer 2001 The Growth of Unsecured Credit: Are We Better Off? Kartik B. Athreya
Spring 2001 To Forgive or Not to Forgive: An Analysis of U.S. Consumer Bankruptcy Choices Wenli Li
Fall 1998 Government Loan, Guarantee, and Grant Programs: An Evaluation Wenli Li
Fall 1995 The Fair Lending Laws and Their Enforcement John R. Walter
Summer 1995 Cycles in Lending Standards? John A. Weinberg
Summer 1995 Errors in Variables and Lending Discrimination Jed L. DeVaro
Jeffrey M. Lacker
Spring 1995 Neighborhoods and Banking Jeffrey M. Lacker
Paper Title Author(s)
June 2014
Labor-Market Uncertainty and Portfolio Choice Puzzles Yongsung Chang
Jay H. Hong
Marios Karabarbounis
April 2014
Payment Choice and the Future of Currency: Insights from Two Billion Retail Transactions (Revised October 2014) Zhu Wang
Alexander L. Wolman
January 2014
Does Greater Inequality Lead to More Household Borrowing? New Evidence from Household Data Olivier Coibion
Yuriy Gorodnichenko
Marianna Kudlyak
John Mondragon
August 2013
Are Young Borrowers Bad Borrowers? (Revised June 2014) Peter Debbaut
Andra C. Ghent
Marianna Kudlyak
March 2013
The College Premium, College Noncompletion, and Human Capital Investment Kartik B. Athreya
Janice Eberly
October 2011
Loan Guarantees for Consumer Credit Markets Kartik B. Athreya
Xuan S. Tam
Eric R. Young
September 2011
Mortgage Defaults and Prudential Regulations in a Standard Incomplete Markets Model (Revised February 2014) Juan Carlos Hatchondo
Leonardo Martinez
Juan M. Sanchez
June 2010
The Role of Non-Owner-Occupied Homes in the Current Housing and Foreclosure Cycle Breck Robinson
Richard M. Todd
May 2010
Housing Default: Theory Works and So Does Policy Allen C. Goodman
Brent C Smith
April 2010
Assessing the Effectiveness of the Paulson "Teaser Freezer" Plan: Evidence from the ABX Index Eliana Balla
Robert E. Carpenter
Breck Robinson
March 2010
Residential Mortgage Default: The Roles of House Price Volatility, Euphoria and the Borrower's Put Option Wayne R. Archer
Brent C Smith
July 2009
Recourse and Residential Mortgage Default: Theory and Evidence from U.S. States (Revised June 2010) Andra C. Ghent
Marianna Kudlyak
April 2009
Assessing the Effectiveness of the Paulson "Teaser Freezer" Plan: Evidence from the ABX Index Eliana Balla
Robert E. Carpenter
Breck Robinson
April 2009
Credit and Self-Employment Kartik B. Athreya
Ahmet Akyol
April 2009
The Role of Information in the Rise in Consumer Bankruptcies Juan M. Sanchez
October 2008
A Quantitative Theory of Information and Unsecured Credit (Revised July 2011) Kartik B. Athreya
Xuan S. Tam
Eric R. Young
September 2008
Optimal Personal Bankruptcy Design: A Mirrlees Approach Borys Grochulski
May 2008
Long-Duration Bonds and Sovereign Defaults (Revised July 2009) Juan Carlos Hatchondo
Leonardo Martinez
September 2007
The Anatomy of U.S. Personal Bankruptcy under Chapter 13 Hülya Eraslan
Wenli Li
Pierre-Daniel G. Sarte
June 2007
A Literature Review on the Effectiveness of Financial Education Matthew Martin
November 2003
Unsecured Debt with Public Insurance: From Bad to Worse (Revised: Nov. 2004) Kartik B. Athreya
Nicole B. Simpson
May 2003
Fresh Start or Head Start? Uniform Bankruptcy Exemptions and Welfare (Revised: Jul. 2004) Kartik B. Athreya
August 2003
Risky Higher Education and Subsidies Ahmet Akyol
Kartik B. Athreya
September 2002
The Macroeconomics of U.S. Consumer Bankruptcy Choice: Chapter 7 or Chapter 13? Wenli Li
Pierre-Daniel G. Sarte
July 1985
Logit Analysis of the Effect of Rent Control on Housing Quality David L. Mengle
November 1985
The Effect of Second Generation Rent Controls on the Quality of Rental Housing David L. Mengle

Recent Research

A selection of important recent research in consumer finance. The list is in chronological order by date of publication, with the most recent first. In some cases, links are provided to an earlier version of the journal article.

An overview of recent developments in the emerging field of household finance
Guiso, Luigi and Paolo Sodini. "Household Finance. An Emerging Field." Einaudi Institute for Economic and Finance Working Paper 1204 (2012).

An analysis of a household's mortgage default decision and the factors affecting the likelihood of default
Campbell, John. Y. and Joao. F. Cocco. "A Model of Mortgage Default." National Bureau of Economic Research Working Paper 17516 (October 2011).

An alternative account of stock-ownership over the life-cycle, based on learning and ambiguity about stock returns
Campanale, Claudio. "Learning, Ambiguity, and Life-Cycle Portfolio Allocation." Review of Economic Dynamics 14, no. 2 (April 2011): 339-367

What do economists know about household spending over the life-cycle?
Attanasio, Orazio P. and Guglielmo Weber. "Consumption and Saving: Models of Intertemporal Allocation and Their Implications for Public Policy." Journal of Economic Literature 48, no. 3 (September 2010): 693–751.

An explanation for the relatively limited participation of U.S. households in the stock market
Davis, Steven J., Felix Kubler, and Paul Willen. "Borrowing Costs and the Demand for Equity Over the Life Cycle." Review of Economics and Statistics 88, no. 2 (2006): 348-362.

John Campbell's presidential address to the American Finance Association
Campbell, John Y. "Household Finance." The Journal of Finance 61, no. 4 (August 2006): 1553-1604.

How well can we account for portfolios over the life cycle?
Cocco, Joao F., Francisco J. Gomes and Pascal J. Maenhout. "Consumption and Portfolio Choice Over the Life Cycle." Review of Financial Studies 18, no. 2 (Summer 2005): 491-533.

How household portfolios differ across nations
Guiso, Luigi, and Michael Haliassos, and Tullio Japelli. Household Portfolios. Cambridge, Mass.: The MIT Press, 2003.

An analysis of the tradeoffs involved for households choosing among mortgage products
Campbell, John Y., and Joao F. Cocco. "Household Risk Management and Optimal Mortgage Choice." Quarterly Journal of Economics. 118, no. 4 (2003): 1149-1494.

The importance of risk, retirement, and bequests in the distribution of wealth in the United States
Castaneda, Ann, Javier Diaz-Gimenez and Jose-Victor Rios-Rull. "Accounting for the U.S. Earnings and Wealth Inequality." Journal of Political Economy 111, no. 4 (August 2003): 818-857.

A new explanation of credit card-borrowing behavior
Gross, David B. and Nicholas S. Souleles. "Do Liquidity Constraints and Interest Rates Matter for Consumer Behavior? Evidence from Credit Card Data." Quarterly Journal of Economics 117, no. 1 (February 2002): 149-185.

A formal, "structural" estimation of a rich consumption model
Gourinchas, Pierre-Olivier and Jonathan A. Parker. "Consumption Over the Life Cycle." Econometrica 70, no. 1 (January 2002): 47-89.

Historical Research

The following texts, including influential works by Irving Fisher, Milton Friedman and Robert Lucas, provide a foundation for understanding the economics of consumer finance. They are presented in chronological order by date of publication, with the oldest first.

Irving Fisher's seminal work on consumer finance
Fisher, Irving. Theory of Interest. New York: Macmillan, 1930.

Milton Friedman formalizes the "permanent income" hypothesis
Friedman, Milton. A Theory of the Consumption Function. Princeton, N.J.: Princeton University Press, 1957.

The "life-cycle" hypothesis is refined
Ando, Albert and Franco Modigliani. "Tests of the Life Cycle Hypothesis of Saving: Comments and Suggestions." Oxford Institute of Statistics Bulletin 19 (May 1957): 99-124.

The "Lucas Critique," reinforcing the importance of rational expectations
Lucas, Robert E. "Econometric Policy Evaluation: A Critique." Carnegie-Rochester Conference Series on Public Policy 1 (1976): 19-46.

Liquidity constraints appear to be necessary to reconcile data with the "permanent income" hypothesis
Hall, Robert E. and Frederic Mishkin. "The Sensitivity of Consumption to Transitory Income: Estimates from Panel Data on Households." Econometrica 50, no. 2 (March 1982): 461-481.

The consumer finance problem analyzed without liquidity constraints
Zeldes, Stephen P. "Consumption and Liquidity Constraints: An Empirical Investigation." Journal of Political Economy 97, no. 2 (April 1989): 305-346.

An innovative model helps explain empirical rejections of consumer finance theory
Deaton, Angus. "Saving and Liquidity Constraints." Econometrica 59, no. 5 (September 1991): 1221-1248.

Measuring how much individual uncertainty matters to national savings
Aiyagari, S. Rao. "Uninsured Idiosyncratic Risk and Aggregate Saving." The Quarterly Journal of Economics 109, no. 3 (August 1994): 659-684.

How public policy creates powerful incentives to discourage savings for some groups
Hubbard, R. Glenn, Jonathan Skinner and Stephen P. Zeldes. "Precautionary Saving and Social Insurance," Journal of Political Economy 103, no. 2 (April 1995): 360-399.

Standard consumer finance theory tested in an environment without certainty equivalence
Carroll, Christopher D. "Buffer Stock Saving and the Life Cycle/Permanent Income Hypothesis." The Quarterly Journal of Economics 112, no. 1 (February 1997): 1-55.