Abstract: We examine how the effects of government spending shocks depend on the balance-sheet position of households. Employing U.S. household survey data, we find a large, positive consumption response for households with mortgage debt, smaller response for renters, and an insignificant response for outright homeowners, in response to a positive government spending shock. We consider a model with three types of households and show that it can successfully account for these findings. Liquidity constraints and wealth effects play a crucial role in shock propagation. Our findings suggest the importance of household mortgage debt position in the transmission mechanism of fiscal policy.

Abstract: We examine how consumers adjust their spending in response to anticipated income changes and how these adjustments vary with the size of the income change. Using data from the Bank of Korea on credit card expenditure following an individual's final car loan payment —a predictable increase in discretionary income— we find an average marginal propensity to consume (MPC) of 18 percent. Our findings indicate a significant sensitivity of spending to the size of payments relative to quarterly income,  highlighting a notable deviation from consumption-smoothing behavior for smaller income changes. We also observe a strong size-dependent MPC regardless of liquidity constraints. These results have important implications for predicting consumption responses to fiscal policies. 

Abstract: This paper offers a new perspective on measuring uncertainty shocks by leveraging the term structure of VIX futures. While the VIX and economic policy uncertainty index are the two most widely used uncertainty measures, recent episodes—such as the 2016 U.S. election—reveal notable divergences between them. We show that incorporating the VIX futures term structure helps reconcile this disconnect, as medium- and long-term futures provide meaningful insights into EPU, indicating that their relationship persists beyond the short term. Defining uncertainty shocks as intra-month shifts in the implied volatility term structure, we propose a functional framework that captures both short- and long-horizon dynamics. This approach captures additional dimensions of uncertainty and offers new insights into its macroeconomic effects.

Selected for: College of Liberat Arts (CLLA) Graduate  Summer Rearch Grant project;