Research
Revisiting the Effect of Monetary Policy on Household Consumption: A Functional Approach
(joint with Ana María Herrera)
Using the functional approach developed by Inoue and Rossi (2021), we revisit the effect of monetary policy shocks on household consumption. Measuring shocks as shifts in the entire term structure of interest rates reveals a heterogeneous response of households to conventional and unconventional policies. We find that consumption by outright owners is more sensitive to unconventional shocks than that of mortgagors and renters. In addition, we show that younger households’ consumption is more responsive to shocks that affect medium and long-term interest rates than that of middle-age and older households. Two transmission mechanisms appear to play a key role in explaining heterogeneity in the transmission of unconventional monetary policy: differences in wealth and in the planning horizon of households.
Under a SALT Cap: The Effect of Limiting the SALT Deduction on Local Housing Markets
(joint with Kenneth Tester)
We estimated to which extent state and local taxes (SALT) are capitalized into home value using Zillow’s ZTRAX data set. To identify capitalization rates, we use the implementation of SALT caps through the passage of the TCJA to see how a national change in the price of local residence impacted housing markets. Using IRS Statistics of Information data on ZIP code level tax filings, We estimate that about 76 percent of the SALT is capitalized into the sales price. To control for local amenities and housing characteristics, we leverage a repeat sales model, identified through event study and difference-in-difference estimates. Overall, we find evidence that sales prices decline in areas with the greatest exposure to the SALT deduction, and strong evidence of partial capitalization.
Tax Expectations: Revisiting through with Functional Shocks