Essays on Wealth, Liquidity and Household Finance

Abstract

In recent years, the analysis of household wealth has become a important field of study for both academics and policymakers. Consequently, in this thesis, household wealth, its determinants, and its effect on house- hold consumption, poverty, and understanding the determinants of wealth are studied. Firstly, changes in household wealth are identified through expected and unexpected changes in house prices and disposable income. Changes in house prices and income are studied to determine if there is a relationship between consumption, investment and spending decisions. The results suggest no significant positive correlation between unexpected house price changes and household consumption in the United States. Secondly, income and asset poverty rates in the United States are studied. We define asset poverty and review how demographic and household events affect as- set poverty rates. The findings suggest one in every four households did not have the financial assets to cover three months of their basic consumption needs in 2011. Black, single female headed households, and renters are more likely to be asset poor, and remain asset poor over multiple years. Finally, this thesis examines the application of modern machine learning techniques to estimate a households net wealth, and net wealth minus housing equity. The findings reported across the 1999-2017 period, suggest variables such as profit on stock, house value, and profit on business are the most important features in predicting household wealth. Secondly, the results identify alter- native variables such as dividends, years left on mortgage, and interest in- come are also important factors in determining a households’ wealth. Thus, this thesis provides new findings that further the current understanding of how household wealth affects non-durable consumption; provides evidence that current poverty rates are underestimated in the United States; and provides new variables that can be used to estimate household wealth.