Julia Fonseca
Publications
"Mortgage Lock-In, Mobility, and Labor Reallocation," with Lu Liu
Journal of Finance, 2024
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Brattle Group Prize: First Prize Paper for 2025
We study the impact of rising mortgage rates on mobility and labor reallocation. Using individual-level credit record data and variation in the timing of mortgage origination, we show that a 1 p.p. decline in the difference between mortgage rates locked in at origination and current rates reduces moving by 9% overall and 16% between 2022–2024, and this relationship is asymmetric. Mortgage lock-in also dampens flows in and out of self-employment and the responsiveness to shocks to nearby employment opportunities that require moving, measured as wage growth within a 50 to 150-mile ring and instrumented with a shift-share instrument.
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Media: Wall Street Journal (x 2), NPR Planet Money (The Indicator), Bloomberg (x 2), New York Times (The Upshot), NPR Planet Money, Vox, Yahoo Finance, New York Times
"Financial Inclusion, Economic Development, and Inequality: Evidence from Brazil," with Adrien Matray
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Journal of Financial Economics, 2024
We study a financial inclusion policy targeting Brazilian cities with low bank branch coverage using data on the universe of employees from 2000-2014. The policy leads to bank entry and to similar increases in both deposits and lending. It also fosters entrepreneurship, employment, and wage growth, especially for cities initially in banking deserts. These gains are not shared equally and instead increase with workers’ education, implying a substantial increase in wage inequality. The changes in inequality are concentrated in cities where the initial supply of skilled workers is low, indicating that talent scarcity can drive how financial development affects inequality.
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"Less Mainstream Credit, More Payday Borrowing? Evidence from Debt Collection Restrictions"
[Pre-publication version] [Internet Appendix]
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Journal of Finance, 2023
Governments regulate debt collectors to protect consumers from predatory practices. These restrictions may lower repayment, reducing the supply of mainstream credit and increasing the demand for alternative credit. Using individual credit record data and a difference-in-differences design comparing consumers in states that tighten restrictions on debt collection to those in neighboring states that do not, I find that restricting collections reduces access to mainstream credit and increases payday borrowing. These findings provide new evidence of substitution between alternative and mainstream credit and point to a trade-off between shielding consumers from certain collection practices and pushing them into higher-cost payday lending markets.
Media: The Economist
"Financial Development and Labor Market Outcomes: Evidence from Brazil," with Bernardus Van Doornik
[Pre-publication version] [Internet Appendix]​
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Journal of Financial Economics, 2022
We estimate the effect of an increase in the availability of bank credit on the employment and the wages of high- and low-skilled workers. To do so, we consider a bankruptcy reform that increased the legal protections of secured creditors, which led to an expansion of bank credit to Brazilian firms. We use detailed administrative data and an empirical strategy that exploits cross-sectional variation in the enforcement of the new legislation arising from differences in the congestion of civil courts. We find that the expansion in credit led to an increase in the skill intensity of firms and in within-firm returns to skill. To rationalize these findings, we design a model in which heterogeneous producers face constraints in their ability to borrow and have production functions featuring capital-skill complementarity. We use this framework to generate an industry-level measure of capital-skill complementarity, which we use to provide direct evidence that the effect of access to credit on skill utilization and the skill premium is driven by a relative complementarity between capital and labor.
"Benchmarking Machine-Learning Software and Hardware for Quantitative Economics," with Victor Duarte, Diogo Duarte, and Alexis Montecinos
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Journal of Economic Dynamics and Control, 2020
We investigate the performance of machine learning software and hardware for quantitative economics. We show that the use of modern numerical frameworks can significantly reduce computational time in compute-intensive tasks. Using the Least Squares Monte Carlo option pricing algorithm as a benchmark, we show that specialized hardware and software speeds the calculations by up to two orders of magnitude when compared to programs written in popular high-level programming languages, such as Julia and Matlab.
Working
Papers
"AI for Structural Estimation," with Victor Duarte
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Revise & Resubmit, Journal of Financial Economics
We develop a global method to solve and estimate dynamic equilibrium models that treats prices as pseudo parameters and market clearing as moment conditions, and reduces estimation time from days to minutes. Our approach leverages AI algorithms, software, and hardware, and has three building blocks. First, we extend the state space to include equilibrium prices and model parameters, which allows us to clear markets and estimate parameters by solving the model once. Second, we approximate the mapping between parameters and moments by training neural networks on model-simulated data, which act as closed-form expressions for moment conditions. Third, we use this mapping to estimate parameters by minimizing the distance between the model and data moments, and to find equilibrium prices by targeting a market-clearing imbalance of zero. We also use this mapping to assess identification globally, verifying if the estimation objective function has a unique minimum for each parameter. We illustrate our method by estimating a dynamic general equilibrium model of leverage and investment with three state variables, three controls, endogenous default, costly equity issuance, and non-convex adjustment costs. After four days, the traditional approach does not reach the loss we achieve in under 20 minutes. We build an AI agent that applies our method to new models from natural language prompts.
"Simple Allocation Rules and Optimal Portfolio Choice Over the Lifecycle," with Victor Duarte, Aaron Goodman, and Jonathan Parker
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Solicited for submission, Journal of Financial Economics​
In many areas of economics, relatively simple models developed for insight are used as quantitative guides. We study the accuracy of such simple quantitative guidance in an area where it has been widely adopted — lifecycle portfolio choice among stocks, bonds, and liquid accounts — by developing a machine-learning algorithm to solve for optimal portfolio choice in a calibrated lifecycle model that includes many features of reality modeled only separately in previous work. Both for optimizing households and for households that under-save, the average fully optimal portfolio at each age conforms well to current simple age-dependent prescriptive rules until shortly before retirement, validating existing analyses. We further show that the consumption-equivalent losses from conditioning portfolio shares on age alone are substantial, around 2 to 3 percent of consumption. Fully optimal equity shares have substantial heterogeneity, particularly by wealth level, state of the business cycle, and dividend-price ratio, implying substantial gains to further customization in these dimensions.
Media: Wall Street Journal, Morningstar
"Unlocking Mortgage Lock-In: Equilibrium Effects in a Spatial Housing Ladder Model," with Lu Liu and Pierre Mabille​
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Revise & Resubmit, Review of Financial Studies
Mortgage borrowers are "locked in": forgoing moves to hold on to low rates. We show that missing downsizers stay in larger homes, raising net housing demand. We design a spatial housing ladder model with long-term mortgages, generating a distribution of locked-in rates and causal mobility effects consistent with the data. A temporary rate hike causes lock-in, increasing house prices by 4.4% and rents by 1.4% relative to a counterfactual without lock-in, offsetting a third of the house-price decline caused by higher rates. A starter-home seller subsidy modestly increases mobility at a high cost per marginal move, suggesting demand-based policies are poorly targeted responses to lock-in.
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Media: NPR Planet Money (The Indicator), NPR Planet Money, NPR Morning Edition, Vox​
"The Effects of Deleting Medical Debt from Consumer Credit Reports," with Victor Duarte, Divij Kohli, and Julian Reif
One in seven Americans carry medical debt, with $69 billion reported on consumer credit reports. In April 2023, the three major credit bureaus stopped reporting medical debt collections below $500. We study the effects of this information deletion on consumer credit scores, credit access, repayment behavior, and payday borrowing. Regression discontinuity estimates comparing individuals just above and below the $500 threshold show that the deletion reduced the reported number of medical debt collections by 61 percent. Despite expectations that removing negative credit information would improve credit outcomes for affected individuals, we find no evidence of benefits over the subsequent two years, ruling out even small effects. To interpret these findings, we build credit scoring models and show that medical debts, regardless of size, add minimal incremental information for default prediction beyond standard credit report variables, implying that they contribute negligibly to credit risk assessment. Our results suggest that eliminating medical debt collections entirely from credit reports would be unlikely to affect credit outcomes.
[NEW] "Self-Fulfilling Credit Scores," with Victor Duarte
A decline in credit scores can worsen the borrower's financial position, making default a self-fulfilling prophecy. We estimate the causal effect of credit scores on default using a rule that counts multiple inquiries within 14 days as one, moving scores without changing credit reports. Regression discontinuity estimates around the 14-day cut-off show that an additional counted inquiry lowers scores by five points on average. Default does not respond among consumers with clean records, but rises by 3.2 percentage points over two years among those with prior derogatories. For these consumers, at least 13 percent of the relationship between scores and default is self-fulfilling. We show that scorers would want to limit self-fulfilling defaults if their objective is forecast accuracy, but not if it is separating defaulters from non-defaulters, because that objective rewards the score for the defaults it causes.
[REVISED] "How Much Do Small Businesses Rely on Personal Credit?" with Jialan Wang
In 2021, operational failures at nine Paycheck Protection Program lenders disrupted funding for nearly a million small business loans. Using linked credit records of owners and businesses, we study how owners' personal borrowing responded to the shortfall in business credit. Observationally similar owners approved for the same loan amounts at lenders with failures received nearly $14,000 less in 2021 than those at lenders without failures. On average, owners replaced half of the shortfall with personal borrowing within a year and essentially all of it within three, consistent with personal credit being the marginal funding source for the typical business. Firms owned by renters, who do not replace lost business credit, see a 20 percent decline in employment, while firms owned by homeowners do not contract.
Work in
Progress
"Microfinance Institutions and Economic Development: Evidence from Peru," with Carlos Burga and Adrien Matray