Consumer spending is widely considered to be the engine that drives economic growth and prosperity. This dissertation employs theoretical, empirical and computational methods to study the interaction between consumer decisions at the microeconomic level and the evolution of consumption at the macroeconomic level. The first chapter provides a unified account of the U.S. consumption and residential investment dynamics over the last 15 years. Conventional wisdom holds that the consumption boom-bust cycle of the 2000s was caused by homeowners financing their consumption through home equity extraction. However, most of the funds extracted by homeowners are spent on home improvement rather than consumption. This association is strongest among young households. I rationalize these findings using a life-cycle model with home equity-based borrowing subject to borrowing frictions. The boom-bust cycles in consumption and residential investment implied by this model capture several key features of the corresponding cycles found in U.S. data. The model provides a more subtle explanation of the role played by home equity extractors in the consumption cycle. Although extractors individually spent only a small fraction of their extracted funds on consumption, they collectively accounted for much of the consumption boom because the share of extracting households increased rapidly in the early 2000s.The second chapter uses a novel dataset on federal government disaster-relief spending, combined with both household and state-level consumption, income and employment data, to answer the question of whether government spending can have a large effect on private consumption and income. My estimates show that the demand shock created by government disaster-relief spending has a large multiplier effect because of its effects on the labor market. I provide direct empirical evidence in support of the job-creation channel emphasized in New Keynesian models of the transmission of government spending shocks. My analysis has broader implications for the design of government spending programs.The third chapter evaluates the effects of the Housing Provident Fund program, the largest public housing program in China. It was created in 1999 to enhance homeownership and to make housing more affordable. This program involves a mandatory savings scheme that requires participating workers to deposit a fraction of their income into the program. Past deposits are refunded when the worker purchases a house, or retires. The program provides mortgages at subsidized rates to facilitate these home purchases. Given the empirical challenges in evaluating the success of this program, I use a calibrated life-cycle model to quantify the effectiveness of these polices. My analysis shows that a housing program with these features is expected to increase the rate of homeownership by 4 percentage points in steady state. In addition, the average home size increases by 21% relative to the baseline model. These results are largely unaffected by the existence of employer contributions. I discuss the economic mechanisms by which these outcomes are achieved.
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