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Working Paper
Labor-Market Uncertainty and Portfolio Choice Puzzles
The standard theory of household-portfolio choice is hard to reconcile with the following facts: (i) Households hold a small amount of equity despite the higher average rate of return. (ii) The share of risky assets increases with the age of the household. (iii) The share of risky assets is disproportionately larger for richer households. We develop a life-cycle model with age-dependent unemployment risk and gradual learning about the income profile that can address all three puzzles. Young workers, on average asset poor, face larger labor-market uncertainty because of high unemployment risk ...
Briefing
How Can We Make a Progressive Tax System More Efficient?
In the U.S., income tax rates rise as households earn more. However, such a system means workers have a reduced incentive to increase their earnings. In this article, I discuss a finding from one of my papers that explores the possible effects of targeting tax rates on additional characteristics besides income.
Journal Article
How Much Consumption Responds to Government Stimulus
What is the effect of government spending on private consumption? Estimates show that stimulus distributed through the American Recovery and Reinvestment Act had a large positive effect. Estimates from regional data suggest every $100 of stimulus generated an additional $18 within regions. Furthermore, by accounting for economic connections that spread the impact beyond regional borders, a new study finds that every $100 triggered an increase of $40 in overall private consumption in the economy.
Journal Article
Labor-Market Wedge under Engel Curve Utility: Cyclical Substitution between Necessities and Luxuries
In booms, households substitute luxuries for necessities, e.g., food away from home for food at home. This cyclical pattern of composition changes in the consumption basket has the potential to reduce the volatility of measures of the labor-market wedge, the gap between the marginal rate of substitution and the real wage. Based on household expenditure patterns from the Consumer Expenditure Survey, we show that this composition bias has only a limited impact on the measured labor-market wedge, accounting for 6 percent to 16 percent of its cyclical volatility.
Journal Article
A Business Cycle Analysis of Debt and Equity Financing
This article provides an introductory, yet comprehensive, business cycle analysis of firm financing. Using data from Compustat, we find that debt issuance is procyclical while the net sale of stock is countercyclical. However, an equity financing measure that includes stock compensation and especially mergers turns out to be weakly procyclical. Nevertheless, there is widespread heterogeneity in firm financing. Compared to large firms, the equity issuance of small firms tends to be more procyclical while debt issuance tends to be less procyclical. We then examine how well a quantitative model ...
Briefing
How Female Labor Supply Shapes Aggregate Labor Market Dynamics
In this article, we detail key aspects of female labor supply and how it shapes aggregate labor market dynamics. We start by documenting several important features of female labor supply including labor market participation, business cycle volatility, responsiveness to the underlying economic environment and its role for insurance within the household. For this article, we relied on Michele Tertilt and Matthias Doepke's excellent survey "Families in Macroeconomics."
Briefing
How Important Are Asset Price Fluctuations for Business Investment?
Previous recessions in the U.S. revealed to economists and policymakers that weak macroeconomic conditions may have been worsened by financial distress. Economists have theorized that this association is explained by a decline in physical asset prices that often precede recessions. When physical asset prices decline, firms pledge less-valuable assets to banks, which leads banks to reduce lending. Consequently, firms are not able to finance their investments, which reduces overall economic activity. In this article, we review more recent literature that may indicate that this mechanism is ...
Working Paper
Regional Consumption Responses and the Aggregate Fiscal Multiplier
We use regional variation in the American Recovery and Reinvestment Act (2009-2012) to analyze the effect of government spending on consumer spending. Our consumption data come from household-level retail purchases in the Nielsen scanner data and auto purchases from Equifax credit balances. We estimate that a $1 increase in county-level government spending increases local non-durable consumer spending by $0.29 and local auto spending by $0.09. We translate the regional consumption responses to an aggregate fiscal multiplier using a multi-region, New Keynesian model with heterogeneous agents, ...
Journal Article
Does Bank Lending Matter for Large Firms' Investment?
This paper analyzes how firm investment is affected by changes in bank lending. The analysis uses firm-level data on investment and bank loan issuance. To capture variations in credit availability, I use a firm's exposure to banks that experienced financial disruptions, in the spirit of Chodorow-Reich (2014). I find that firms in lending relationships with banks that sharply decreased their lending did not significantly decrease their investment compared with firms in relationships with healthier banks. In contrast, more traditional measures of bank lending show a strong correlation between ...
Working Paper
Misallocation and Credit Market Constraints: the Role of Long-Term Financing
We measure aggregate productivity loss due to credit market constraints in a model with endogenous borrowing constraints, long-duration bonds, and costly equity payouts. Due to long-duration bonds, the model generates a realistic distribution of credit spreads. We structurally estimate our model using firm-level data on credit spreads from Thomson Reuters Bond Security Data and balance sheet data from Compustat. Credit market constraints increase aggregate productivity by 0.4% through their effect on the credit spread distribution. However, credit market constraints also interact with costly ...