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 introduces a new approach to measuring uncertainty shocks by exploiting the term structure of VIX futures. We document that VIX futures display notable within-month dynamics, including frequent episodes of inversion. Harnessing these dynamics allows us to assess the causal effects of uncertainty shocks, which can be either expansionary or contractionary depending on how the term structure rotates. Furthermore, we show that correlations between existing uncertainty measures—such as the Economic Policy Uncertainty index—and VIX futures vary across horizons: at times stronger with short-term futures and at other times with longer maturities. This variation provides evidence consistent with the potential decoupling of uncertainty indices, a phenomenon frequently emphasized in the literature.

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