Debt and the Response to Household Income Shocks: Validation and Application of Linked Financial Account Data

The increasing availability of data derived from linked consumer financial accounts has the potential to dramatically expand the potential for research. Examining the most comprehensive existing set of linked-account data, consisting of transaction and balance sheet data for millions of Americans, I demonstrate the power and versatility of such sources. I discuss advantages and concerns arising from this type of data and match a range of distributional moments to external sources. As one application, I test consumption elasticities across households with varying levels, and types, of debt. I find that heterogeneity in consumption elasticity can be explained entirely by credit and liquidity.