TWO ESSAYS ON HOUSEHOLD FINANCE

This thesis consists of two essays on household finance. The first essay investigates the effect of stock market fluctuations on workplace inattention, using administrative data from a large Chinese hospital covering about 560 doctors and 4 million patient visits during 2015–2019. Controlling for doctor and time fixed effects, this essay documents that following a one standard deviation increase in stock market volatility in the morning, patients in the same-day afternoon are 2.8% more likely to pay a second visit and switch to an alternative doctor. This effect is significantly stronger for patients suffering from more severe conditions. Corresponding to the deterioration of workplace performance, doctors also provide shorter consultations and are more likely to prescribe medication without performing diagnostics tests after experiencing a volatile stock market. In contrast, consultations in the early morning sections before the market opens and the arrival of patients are not affected. Overall, this essay highlights a hitherto unexplored cost of stock market participation. The second essay investigates how consumers respond to an unexpected interest rate decrease that automatically reduces interest expenses for all mortgage borrowers in the country and thereby generates significant positive disposable income shocks. Based on a representative sample of credit card holders from a leading Chinese commercial bank, the difference-in-differences analysis shows that mortgage borrowers increased their monthly credit card spending by 8.6% after the 230bps mortgage rate reduction announced in September 2008. The spending response appears both immediately after the announcement and during the post-reset period. Subsequent to an interest-rate-increase episode, mortgage borrowers symmetrically reduced their credit card spending. Hand-to-mouth mortgage borrowers experienced a more pronounced spending increase, even among those with ample credit access. The debt-service channel plays an important role in transmitting monetary policy—the estimate of this essay implies a marginal propensity to consume (MPC) of 0.41-0.54 through credit card spending.