The three chapters of my dissertation study household finance, with a particular interest in financial institutions and poor households. Specifically, I study constraints households have that are unobservable to institutions yet impact their interaction and the effectiveness of government interventions that aim to ease or facilitate these exchanges. Chapter 1 studies the behavior of payday loan borrowers by using bank-transaction level data on household spending, income, and loan activity to document three novel stylized facts. They suggest that a payday borrower is poor, has volatile income, and uses payday loans to smooth baseline consumption needs after an adverse idiosyncratic income shock. Chapter 2 builds on these findings to motivate a short-term lending model. The equilibrium contract under realistic frictions matches the observed payday loan contract on multiple dimensions, specifically when borrowers have low expected income and high-income volatility. I then calibrate my model using my bank-transaction dataset and find welfare increases between 5% and 28.7% when rollover fees decrease and initial fees increase. Chapter 3 studies the efficiency of government healthcare subsidization schemes, with a specific interest in the underlying mechanisms that financially motivate hospitals to serve the uninsured. We study a Disproportionate Care Hospital (DSH) payment scheme that supports hospitals treating a disproportionately higher fraction of uninsured patients. We demonstrate that DSH payments lead to social welfare loss, especially in a system with large and small hospitals, compared to the second-best mechanism. We then use the setting of the Global Payment Program (GPP) program, which compliments DSH by providing primary care, to show that direct and assured payment for primary care improves social welfare. Overall, my dissertation seeks to understand the development of an equilibrium contract structure between financial institutions and the poor, examine methods of greater efficiency, and evaluate the impact of government interventions to alleviate tensions between these parties.

This dissertation studies topics in international macroeconomics. In the first chapter, I develop a heterogeneous agent model of a small open economy and studies how households differ in their responses to aggregate productivity and interest rate shocks. Poor households display stronger consumption responses to an aggregate productivity shock because they are more likely to be constrained in liquid assets. In contrast, rich households display stronger consumption responses to an interest rate shock because they are more likely to be unconstrained in liquid assets. When the economy experiences a sudden stop, defined as transitory contractionary shocks to productivity and the interest rate, the interest rate effect neutralizes the productivity effect. As a consequence, the sudden stop generates consumption-income elasticities that display little variation along the income distribution, similar to a permanent shock. My finding captures the observed behavior of households in the Mexican Peso Crisis of 1994. In the second chapter, I study a small open economy subject to a borrowing constraint which experiences stochastic volatility in its output endowment. I find that volatility shocks induce substantial changes in borrowing by households, in excess of the precautionary savings response. Household responses to volatility shocks increases the standard deviation of borrowing, but not the standard deviation of consumption, suggesting small welfare costs. Stochastic volatility increases the frequency of financial crises in a decentralized economy that overborrowsdue to a pecuniary externality, but not a socially optimal economy. In the third chapter, I introduce income heterogeneity into a small open economy model with an occasionally binding collateral constraint. Income heterogeneity generates poor households that borrow up to the constraint to smooth over their income shock. This differs from representative agent models that require a depressed aggregate state for the representative household to interact with the constraint. As a consequence, the model displays a higher average marginal propensity to consume which generates a higher volatility of aggregate consumption. The model with income heterogeneity fails to generate sudden stops. This occurs as the income shock generates rich households that are able to consumption smooth throughout contractions. In the fourth chapter, I trace the path between a benchmark representative agent model and a benchmark heterogeneous agent model. Heterogeneous agent models typically introduce idiosyncratic income risk, a financial friction in the form of a borrowing or non-negativity constraint, and recalibrate the impatience of households. This paper studies the effect of each term. With the minimal financial friction that households cannot starve, complete markets fail, but income risk has no significant effect on the aggregate response of consumption to an endowment or interest rate shock relative to a representative agent benchmark. Heterogeneity and significant financial frictions generate empirically realistic marginal propensities to consume, but fail to alter the aggregate consumption response. Decreasing the impatience of households is necessary to significantly alter aggregate responses to endowment and interest rate shocks.