Hutchins Roundup: Stimulus checks, team players, and more.

Studies in this week’s Hutchins Roundup find that households with low liquidity are more likely to spend their stimulus checks, social skills predict group performance as well as IQ, and more.

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Households with low liquidity have a larger marginal propensity to consume

Using high-frequency transaction data, Scott R. Baker from Northwestern University and coauthors estimate how household spending has responded to the $1,200 per adult CARES Act stimulus payments. They show that, on average, recipients spent 29 cents of every dollar received in stimulus payments within 10 days. Relative to previous economic stimulus programs in 2001 and 2008, they find larger increases in spending on food, non-durables, rent, and bill payments and smaller increases in spending on durable goods. Moreover, lower income, larger income drops, and less liquidity are all associated with a larger increase in spending—with liquidity being the strongest predictor. In particular, they show that individuals with less than $500 in their bank accounts spent almost half of their stimulus payment within ten days—44.5 cents per dollar received— while individuals with over $3000 in their accounts have not responded to the stimulus. The authors conclude that stimulus measures are most effective when targeted to households with low levels of liquidity.

Social skills predict group performance as well as IQ

While there are many studies of the determinants of team success, team-level performance differences are not easily attributed to individual members of the group. Ben Weidmann and David J. Deming from Harvard University conduct a novel experiment to isolate individual contributions to group performance. First, they assess individual performance on several tasks. They then randomly assign individuals to multiple groups and measure each group’s performance on tasks that are similar to those that were administered individually. Last, they generate a prediction for group performance based on individual scores and compare it to each group’s actual performance. By doing so, they are able to identify “team players” who consistently cause their group to exceed its predicted performance. They find that the team player effect is not predicted by demographic characteristics such as age, gender, education, ethnicity or IQ. However, team players score significantly higher on a social intelligence test. Moreover, the authors find that the team player effect is about 60% as important as individual skills in explaining group performance, and that social skills—a combination of being a team player and social intelligence— predict group performance about as well as IQ alone. They reason that this is because team players increase individual effort among teammates.

Quantitative easing can lead to lower market liquidity

Using data from the European Central Bank’s bond buying, Marien Ferdinandusse, Maximilian Freier, and Annukka Ristiniemi of the ECB find that there is a trade-off between yields and liquidity (the ability to buy or sell assets without materially affecting price). Central bank bond purchases impact yields and liquidity through two channels: the demand channel as central banks buy government bonds, and the supply channel because central banks hold bonds until maturity thus limiting supply. Initially, purchases increase market liquidity because sellers can easily sell to the central bank. But as yields fall, this crowds out other buyers, so market liquidity diminishes. The magnitude of the trade-off depends on the share of preferred habitat investors—those who demand specific asset types—because they are less likely to be crowded out, the authors say. The more preferred habitat investors, the more buyers, so central bank purchases are more effective at reducing yields while aggravating illiquidity; in contrast, when there are fewer buyers of bonds, the actions of the central bank improve liquidity

Chart of the week: Healthcare spending accounted for nearly half the drop in first-quarter GDP

Quote of the week:

“I think a big question is going to be what is the environment that will provide households, consumers and workers sufficient confidence so that they will go out and engage in the type of retail, commercial activities that they did before, that our economy is—the infrastructures—is built upon. If you have antibodies, if you know that you’re not going to get it, then you’re out and about, but of course the person behind the counter doesn’t know that you’re like that. So I just can’t really guess how much risk aversion will actually occur in that environment. And then if you see a bunch of big waves take place in certain cases, that’s the risk that it ends up being much, much worse. It is useful for researchers in academic situations to go out and sort of model this and provide information for us so that we can ponder it. But I think we still have to be extraordinarily careful here,” says Charles Evans, president of the Federal Reserve Bank of Chicago.