Dissertation Defense: Wenlan Luo

Thursday, March 23 at 9:00am to 11:00am

Edward B. Bunn, S.J. Intercultural Center, 550 37th and O St., N.W., Washington

Candidate Name: Wenlan Luo

Major: Economics

Advisor: Mark Huggett, Ph.D.

Title: The Consumer Credit Channel of Monetary Policy

Using the Consumer Expenditure Survey, I document a new fact that the consumption response to monetary policy shocks is greater for households with higher default risk. I propose a consumer credit channel that accommodative monetary policy extends credit disproportionately to risky households which have higher propensities to spend out of extended credit. I study the mechanism in a Heterogeneous Agent New Keynesian model augmented with asymmetric information. In the model, credit limits arise because borrowers can default on loans and borrowing signals a risky type. Accommodative monetary policy extends credit as it lowers default rate and changes lenders’ beliefs on the types of borrowers. Calibrated to match the cross-sectional distribution of default rate, credit limit, and marginal propensity to spend, the consumer credit channel accounts for 63% of the heterogeneous consumption responses and 20% of the aggregate response. The model is used to assess the distributional effects of monetary policy and the "risk-taking" channel.

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Event Type

Academic Events, Dissertation Defense

Departments

Georgetown College, Economics, Graduate School of Arts and Sciences

Cost

Free

Open to the public and the press?

Yes

Event Contact Name

Julius Shapiro

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