ESRI Research Seminar: How Financial Innovations and Accelerators Drive Booms and Busts in U.S. Consumption (Updated from 2010 to End 2014)

Venue: ESRI, Whitaker Square, Sir John Rogerson's Quay, Dublin 2

Speaker: Anthony Murphy (Federal Reserve Bank of Dallas)

The post-1980 downward trend in the U.S. saving rate and the recent consumption boom and bust have been attributed to changes in the supply of credit and the liquidity of housing wealth, factors which are not directly observed. Our indexes of unsecured consumer credit availability and the liquidity of housing wealth address this gap. The liquidity of housing wealth is estimated as a common unobservable state in a jointly estimated, non–linear state space model of consumption and mortgage refinancing. The resulting credit augmented, life cycle model of consumption shows that financial innovations and frictions play critical roles in the booms and busts in U.S. consumption.