JAMES GRAHAM
Publications
Mental Accounts and Consumption Sensitivity Across the
Distribution of Liquid Assets
James Graham and Robert A. McDowall
Forthcoming at American Economic Journal: Macroeconomics
We study consumption responses to predictable income using transaction-level data from a U.S. financial institution. We find that consumption responses are front-loaded to income receipt, decline moderately with liquidity, but are significant even for households with substantial liquid assets. To rationalize these facts, we develop a model of mental accounts in which consumption choices are partitioned across current income and current assets. Our calibration suggests households are moderately averse to dissaving out of assets, which generates the timing and distribution of consumption responses observed in the data. Finally, we explore implications of the model for the design of fiscal policy.
I study a novel institutional feature of Australian housing markets: the widespread use of mortgage offset accounts. These accounts reduce mortgage interest costs and increase the liquidity of mortgage balances. I build a heterogeneous agent life-cycle model of the Australian housing market to study who benefits from these accounts and by how much. Households in middle age, with high incomes, and with more expensive houses are most likely to use offset accounts and derive larger benefits from their use. I show that a social planner could maintain mortgage profitability, improve household welfare, and more evenly distribute benefits by adjusting the price structure of offset accounts.
Stuck at Home: Housing Demand During the COVID-19 Pandemic (2023)
William Gamber, James Graham, and Anirudh Yadav
Journal of Housing Economics
The COVID-19 pandemic induced a significant increase in both the amount of time that households spend at home and the share of expenditures allocated to at-home consumption. These changes coincided with a period of rapidly rising house prices. We interpret these facts as the result of stay-at-home shocks that increase demand for goods consumed at home as well as the homes that those goods are consumed in. We first test the hypothesis empirically using US cross-county panel data and instrumental variables regressions. We find that counties where households spent more time at home experienced faster increases in house prices. We then study various pandemic shocks using a heterogeneous agent model with general equilibrium in housing markets. Stay-at-home shocks explain around half of the increase in model house prices in 2020, with lower mortgage interest rates explaining around one third, and unemployment shocks and fiscal stimulus accounting for the remainder. We find that young households and first-time home buyers account for much of the increase in underlying housing demand during the pandemic, but they are largely crowded out of the housing market by the equilibrium rise in house prices.
House Prices and Consumption: A New Instrumental Variables Approach (2023)
James Graham and Christos A. Makridis
Online Appendix, Replication Files
American Economic Journal: Macroeconomics
We introduce a novel, Bartik-like instrument for house prices consisting of the local composition of housing characteristics interacted with aggregate changes in the marginal prices of these characteristics. Using household-level panel data, we estimate elasticities of nondurable consumption expenditures with respect to house prices of around 0.1. These consumption effects are concentrated among the young and those most likely to be facing tight borrowing constraints. A decomposition shows that identifying variation in the instrument is associated with times and locations where house prices have varied the most: during the housing bust of the mid-2000s and in the Western United States.
Public Education Inequality and Intergenerational Mobility (2022)
Angela Zheng and James Graham
Online Appendix, Replication Files
American Economic Journal: Macroeconomics
Public school funding depends heavily on local property tax revenue. Consequently, low-income households have limited access to quality education in neighborhoods with high house prices. In a dynamic life-cycle model with neighborhood choice and endogenous local school quality, we show that this property tax funding mechanism reduces intergenerational mobility and accounts for the spatial correlation between house prices and mobility. A housing voucher experiment improves access to schools, with benefits that can last for multiple generations. Additionally, a policy that redistributes property tax revenues equally across schools improves mobility and welfare. However, the benefits can take generations to be realized.
Age, Industry, and Unemployment Risk During a Pandemic Lockdown (2021)
James Graham and Murat Ozbilgin
Journal of Economic Dynamics and Control
This paper models the macroeconomic and distributional consequences of lockdown shocks during the COVID-19 pandemic. The model features heterogeneous life-cycle households, labor market search and matching frictions, and multiple industries of employment. We calibrate the model to data from New Zealand, where the health effects of the pandemic were especially mild. In this context, we model lockdowns as supply shocks, ignoring the demand shocks associated with health concerns about the virus. We then study the impact of a large-scale wage subsidy scheme implemented during the lockdown. The policy prevents job losses equivalent to 6.5% of steady state employment. Moreover, we find significant heterogeneity in its impact. The subsidy saves 17.2% of jobs for workers under the age of 30, but just 2.6% of jobs for those over 50. Nevertheless, our welfare analysis of fiscal alternatives shows that the young prefer increases in unemployment transfers as this enables greater consumption smoothing across employment states.
Public Education and Intergenerational Housing Wealth Effects
Mike Gilraine, James Graham, and Angela Zheng
Revise and Resubmit at American Economic Journal: Macroeconomics
While rising house prices benefit existing homeowners, we document a new channel through which price shocks have intergenerational wealth effects. Using panel data from school zones within a large U.S. school district, we find that higher local house prices lead to improvements in local school quality, thereby increasing child human capital and future incomes. We quantify this housing wealth channel using an overlapping generations model with neighborhood choice, spatial equilibrium, and endogenous school quality. Housing market shocks in the model generate large intra- and intergenerational wealth effects, with the latter accounting for over half of total wealth effects.
Of House and Home-Related Goods: Consumption Spending
via the Home Purchase Channel
Giovanni Favara, James Graham, and Geng Li
Home-related spending in categories such as furnishings, renovations, and repairs is tied to housing market activity, with significant implications for aggregate expenditure dynamics. We refer to this relationship as the home purchase channel of expenditure. Using household-level panel data we estimate that home purchases lead to sizable increases in home-related spending, but not to increases in goods and services unrelated to home purchase. These findings are robust to the use of close-control groups and placebo tests. We then build a heterogeneous household model with housing, home renovations, and home-related durables that is calibrated to match our household-level evidence. Model simulations of housing market shocks generate large fluctuations in home-related and total expenditure. We show that the home purchase channel amplifies aggregate expenditure dynamics, with home- related spending accounting for around half of total spending fluctuations over the housing cycle.
How does monetary policy affect the homeownership rate? A monetary contraction may have contrasting effects on ownership due to rising interest rates, falling incomes, and lower house prices. To investigate, we build a heterogeneous household life-cycle model with housing tenure decisions, mortgage finance, and an exogenous stochastic process to capture the macroeconomic effects of monetary policy. Following a contractionary shock, homeownership initially falls due to rising mortgage rates, but rises over the medium term given falling house prices. We also show that differences in mortgage credit conditions, mortgage flexibility, and household expectations formation can amplify homeownership dynamics following a shock.
I study the role of investors in stabilizing housing markets during the Great Housing Bust. Using transaction-level housing data, I distinguish between two types of investors that were active during this period: large corporate investors and small household investors. I estimate that following a mortgage credit contraction, house prices fell by 30 percent more in markets where household investors absorbed larger shares of house purchases. To rationalize this result, I build a heterogeneous agent model of the housing market featuring both types of investors. I show that equilibrium house prices fall sharply following a mortgage credit contraction when household investors are required to absorb falling housing demand. In contrast to corporate investors, household investors are sensitive to changing credit conditions and the illiquidity of housing assets. Prices must fall to generate sufficiently large returns to compensate previously indebted homeowners for the increase in borrowing required to invest in additional housing.
Financing first home ownership: modelling policy impacts at market and individual levels (2023)
Rachel Ong ViforJ, James Graham, Melek Cigdem-Bayram, Christopher Phelps, and Stephen Whelan
AHURI Final Report No.398
Monetary Policy Pass-Through to Mortgage Rates (2021)
Severin Bernhard, James Graham, and Shaun Markham
Reserve Bank of New Zealand Analytical Note AN2021/7