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Jel Classification:D31 

Working Paper
The Effects of Macroeconomic Shocks: Household Financial Distress Matters

When a macroeconomic shock arrives, variation in household balance-sheet health (captured by the presence of financial distress “FD”), leads to differential access to credit, and hence a distribution of consumption responses. As we document, though, over the past two recessions, households in prior FD also experienced macroeconomic shocks more intensely than others, leading to a distribution of shock severity. Quantifying the importance of each dimension of heterogeneity (FD or shock severity) for consumption requires a structural model. We find that heterogeneity in FD matters more than ...
Working Papers , Paper 2019-025

Working Paper
Family characteristics and macroeconomic factors in U. S. intragenerational family income mobility, 1978–2014

Family economic mobility has been a policy concern for decades, with interest heating up further since the 1990s. Using data that tracks individual families? incomes during overlapping 10-year periods from 1978 through 2014, this paper investigates the relationships of factors ? family characteristics and macro influences ? to intragenerational mobility and whether the importance of those factors has changed over time. Family characteristics include both levels of work behavior and family structure and within-period changes in those factors, as well as time-invariant characteristics of the ...
Working Papers , Paper 19-1

Working Paper
Consumption in the Great Recession: The Financial Distress Channel

During the Great Recession, the collapse of consumption across the US varied greatly but systematically with house-price declines. Our message is that household financial health matters for understanding this relationship. Two facts are essential for our finding: (1) the decline in house prices led to an increase in household financial distress (FD) prior to the decline in income during the recession, and (2) at the zip-code level, the prevalence of FD prior to the recession was positively correlated with house-price declines at the onset of the recession. We measure the power of the ...
Working Paper , Paper 19-13

Working Paper
Did the 2017 Tax Reform Discriminate against Blue State Voters?

The Tax Cut and Jobs Act of 2017 (TCJA) made significant changes to corporate and personal federal income taxation, including limiting the SALT (state and local property, income and sales taxes) deductibility to $10,000. States with high SALT tend to vote Democratic. This paper estimates the differential effect of the TCJA on red- and blue-state taxpayers and investigates the importance of the SALT limitation to this differential. We calculate the effect of permanent implementation of the TCJA on households using The Fiscal Analyzer: a life-cycle, consumption-smoothing program incorporating ...
FRB Atlanta Working Paper , Paper 2019-7

Journal Article
Risk Aversion at the Country Level

This article estimates the coefficient of relative risk aversion for 75 countries using data on self-reports of personal well-being from the 2006 Gallup World Poll. The analysis suggests that the coefficient of relative risk aversion varies closely around 1, which corresponds to a logarithmic utility function. The authors conclude that their results support the use of the log utility function in numerical simulations of economic models.
Review , Volume 97 , Issue 1 , Pages 53-66

Working Paper
Uninsured risk, stagnation, and fiscal policy

Japan is in the midst of a protracted spell of depressed economic activity. Japan's economic stagnation has occurred against a background of rising earnings risk. Occupational stability is falling as routine occupations disappear and implicit lifetime employment guarantees are gradually disappearing. At the same time, earnings in some high-skilled occupations have continued to grow. The resulting polarization in earnings has also been accompanied by an increase in wealth inequality. We develop a framework that relates these observations. In our model, an increase in uninsured earnings risk ...
FRB Atlanta Working Paper , Paper 2016-4

Working Paper
Peers’ Income and Financial Distress: Evidence from Lottery Winners and Neighboring Bankruptcies

SUPRSEDES WP 18-16 We examine whether relative income differences among peers can generate financial distress. Using lottery winnings as plausibly exogenous variations in the relative income of peers, we find that the dollar magnitude of a lottery win of one neighbor increases subsequent borrowing and bankruptcies among other neighbors. We also examine which factors may mitigate lenders? bankruptcy risk in these neighborhoods. We show that bankruptcy filers obtain more secured but not unsecured debt, and lenders provide additional credit to low-risk but not high-risk debtors. In addition, we ...
Working Papers , Paper 18-22

Report
Income Inequality and Job Creation

We propose a novel channel through which rising income inequality affects job creation and macroeconomic outcomes. High-income households save relatively more in stocks and bonds but less in bank deposits. A rising top income share thereby increases the relative financing costs for bank-dependent firms, which in turn create fewer jobs. Exploiting variation across U.S. states and an IV strategy, we provide evidence for the channel. Calibrating a general equilibrium model to our cross-regional estimates, we show that rising inequality increases the employment share of large firms, reduces the ...
Staff Reports , Paper 1021

Report
Credit and Income Inequality

How does credit access for small business owners affect income inequality? A bank’s cutoff rule, employed in the decision to grant loans and based on applicants’ credit scores, provides us with the exogenous variation needed to answer this question. Analyzing uniquely detailed loan application data, we find that application acceptance increases recipients’ income five years later by more than 10 percent compared to denied applicants. This effect is mostly driven by upward mobility of poor individuals, especially if credit-constrained, thereby reducing income inequality among those who ...
Staff Reports , Paper 929

Working Paper
Cyclical Labor Income Risk

We investigate cyclicality of variance and skewness of household labor income risk using PSID data. There are five main findings. First, we find that head?s labor income exhibits countercyclical variance and procyclical skewness. Second, the cyclicality of hourly wages is muted, suggesting that head?s labor income risk is mainly coming from the volatility of hours. Third, younger households face stronger cyclicality of income volatility than older ones, although the level of volatility is lower for the younger ones. Fourth, while a second earner helps lower the level of skewness, it does not ...
Working Papers , Paper 19-34

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Larrimore, Jeff 12 items

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