By exploiting variation both in mortgage payoffs and mortgage interest rate resets, we find that a decline in mortgage payments induces a significant increase in nondurable goods spending, even when households have substantial amounts of liquidity. Following mortgage payoff, households increase consumption expenditures by 61% of the original payment. In comparison, households increase consumption by only 36% in response to a transitory payment adjustment induced by interest rate changes. Households with a higher payment-to-income ratio have a significantly lower marginal propensity to consume (MPC). These results have practical implications for policy markers seeking to design consumption boosting policies and are important for understanding how changes in monetary policy may affect consumer spending patterns.
International travel is ubiquitous in business firms. In light of the recent shutdowns of air travel due to COVID-19 and the prevalence of virtual communication, however, one might question its value. New research from Michele Coscia, Franke Neffke, and Ricardo Hausmann - recently published in Nature Human Behaviour - shows that business travel, and its subsequent transfer of knowhow, actually drives economic growth. Further, the researchers quantify the value of business travel by estimating the loss in global GDP if it were to stop.