Arlene Wong is a research economist at the Federal Reserve Bank of Minneapolis. In 2017 she will begin teaching at Princeton University as an assistant professor of economics. Arlene received her M.A. and Ph.D. in economics from Northwestern University. She was selected as a speaker for the 2016 May Meetings of the Review of Economic Studies. In 2013 she was the recipient of the Susan Schmidt Bies Prize for Doctoral Student Research on Economics and Public Policy at Northwestern University. Previously she worked as an economist at the Reserve Bank of Australia.
She is an applied economist with interests in macroeconomics, monetary policy, and labor economics. Her latest research focuses on topics such as the role of household heterogeneity in the monetary transmission and the effect of changing consumption patterns on U.S employment.
This paper assesses the effects of demographic changes on the transmission of monetary policy to consumption. First, I provide empirical estimates of age-specific consumption elasticities to interest rate shocks. The consumption of young people is significantly more responsive to interest rate shocks than the old, and explains most of the aggregate response. The consumption responses are driven by homeowners who refinance or enter new loans after interest rate declines. Second, I develop a life-cycle model that explains these empirical facts. The model features fixed-rate mortgages, with fixed costs to refinance and enter into a new loan. I find that young people have a higher propensity to adjust their loans, because the fixed costs are spread over a larger loan size, relative to older individuals. Quantitatively, the loan adjustment channel accounts for a sizable share of the difference in consumption elasticities between young and old individuals. Under an older demographic structure, the model predicts a significantly lower aggregate consumption response to monetary policy shocks.
We document two facts. First, during recessions consumers trade down in the quality of the goods and services they consume. Second, the production of low-quality goods is less labor intensive than that of high-quality goods. So, when households trade down, labor demand falls, increasing the severity of recessions. We find that the trading-down phenomenon accounts for a substantial fraction of the fall in U.S. employment in the recent recession. We study two business cycle models that embed quality choice and find that the presence of quality choice magnifies the response of these economies to real and monetary shocks.
We document a change in household shopping behavior during the Great Recession. Households purchased more on sale, larger sizes and generic products, increased coupon usage, and shopping at discount stores. We estimate that the returns to these shopping activities declined during the recession and therefore this behavior implies a significant decrease in households’ opportunity cost of time. Using the estimated cost of time and time use data, we estimate a high elasticity of substitution between market expenditure and time spent on non-market work. We ﬁnd that households smooth a sizable fraction of consumption by varying their time allocation during recessions.
Wealth in the Pantry: Implications of Consumer Inventory Stockpiling for Household Savings
A sizable proportion of low and middle income households have low levels of financial savings. Understanding the factors behind the low savings rate is relevant for constructing policy aimed at raising savings among these households. Explanations in the literature have ranged from lack of financial literacy to potential financial frictions that prevent these households from entering the financial market. This paper examines an alternative explanation: households choose, in part, to save via stockpiling of physical nondurable goods bought during periods of low prices. These goods would not be included in standard measures of savings and wealth. I use scanner data to estimate the magnitude and return of stockpiling behavior. I find that low and middle income households hold large amounts of stockpiled goods relative to their liquid financial assets. The estimated rate of return on the stockpiled goods exceeds the return on traditional financial assets. I embed the stockpiling mechanism into a Bewley model with aggregate shocks, and find that the stockpiling behavior accounts for a sizable share of consumption smoothing for low-middle income households. These households consume out of their stockpile of non-durable goods when faced with temporary income and price shocks. This suggests that stockpiling is an important non-traditional savings vehicle for these households.