TY  - JOUR
AU  - Carroll,Christopher D.
AU  - Dunn,Wendy E.
TI  - Unemployment Expectations, Jumping (S,s) Triggers, and Household Balance Sheets
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6081
PY  - 1997
Y2  - July 1997
UR  - http://www.nber.org/papers/w6081
L1  - http://www.nber.org/papers/w6081.pdf
N1  - Author contact info:
Christopher D. Carroll
Department of Economics
Mergenthaler 440
Johns Hopkins University
Baltimore, MD 21218
Tel: 410/516-7602
Fax: 410/516-7600
E-Mail: ccarroll@jhu.edu

Wendy Dunn
E-Mail: wendy.e.dunn@frb.gov
M1  - published as Chris Carroll, Wendy Dunn. "Unemployment Expectations, Jumping (S,s) Triggers, and Household Balance Sheets," in Ben S. Bernanke and Julio J. Rotemberg, "NBER Macroeconomics Annual 1997, Volume 12" MIT Press (1997)

AB  - This paper examines the relationship between household balance sheets, consumer purchases, and expectations.  We find few robust empirical relationships between balance sheet measures and spending, but we do find that unemployment expectations are robustly correlated with spending.  We then construct a formal model of durables and nondurables consumption with an explicit role for unemployment and for household debt.  We find that the model is capable of explaining several empirical regularities which are, at best, unexplained by standard models.  Finally, we show that a loosening of liquidity constraints can produce a runup in debt similar to that experienced recently in the US, and that after such a liberalization consumer purchases show heightened sensitivity to labor income uncertainty, providing a potential rigorous interpretation of the widespread view that the buildup of debt in the 1980s may have played an important role in the weakness of consumption during and after the 1990 recession.
ER  -