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Working Paper
Industrial specialization and the asymmetry of shocks across regions
Economic integration, through greater capital market integration, will induce higher regional specialization in production, rendering regional shocks less symmetric. To support this claim empirically, we develop a utility based measure of shock asymmetry and calculate it for each U.S. state. We regress it (using both ordinary least squares and instrumental variables) on a state-by-state 1-digit industrial specialization index and a 2-digit manufacturing specialization index, controlling for relevant economic and demographic variables. The main empirical result is that both specialization ...
Journal Article
Keeping the house or moving for a job
Some reports have suggested that employers can?t fill job openings in some places because they can?t entice workers to move. Workers won?t move, so the story goes, when doing so will mean losing money on their homes, and this is the case for many homeowners since the housing crash. But new research shows that homeowners will move when they have a better job offer, even if they will lose money on their home when they sell it.
Working Paper
Consumption and aggregate constraints : evidence from U.S. states and Canadian provinces
State-level consumption exhibits excess sensitivity to lagged income to the same extent as US aggregate data, but state-specific (idiosyncratic) consumption exhibits substantially less sensitivity to lagged state-specific income---a result that also holds for Canadian provinces. We propose the following interpretation: borrowing and lending in response to changes in consumer demand is easier for an individual US state than it is for the US as a whole. The PIH may thus be a good model for describing the reaction of consumption to idiosyncratic disposable income shocks even if it fails at the ...
Working Paper
Output fluctuations and fiscal policy : U.S. state and local governments 1978-1994
What are the cyclical properties of U.S. state and local government fiscal policy? The budget surplus of local and, in particular, state governments is procyclical, smoothing disposable income and consumption of state residents. This happens over both short- and medium-term horizons. Procyclical surpluses are the result of strongly procyclical revenues, and weakly procyclical expenditures. The budgets of trust funds and utilities are procyclical. Federal grants are procyclical, exacerbating the cyclical amplitude of state level income movements; although they smooth the idiosyncratic ...
Working Paper
The rise and fall of consumption in the '00s
The major portion of U.S. gross domestic product (GDP) is accounted for by consumer spending, which significantly affects the business cycle. Consumer demand has been extremely volatile since 2000, especially given the booms and busts in housing values and in subprime mortgage lending. While it is well-established that housing net worth, credit availability, and household debt levels help to explain changes in consumer spending, the roles played by other potential determinants of consumption are not well identified or understood. This paper uses county-level data and a multiple-regression ...
Journal Article
Banking deregulation helps small business owners stabilize their income
Once banking markets were opened up to geographic diversity and competition, more banks were in a better position to lend money to small businesses-even in tough times.
Working Paper
House prices and risk sharing
We show that homeowners are able to maintain a high level of consumption following job loss or disability in periods of rising house values. However, the consumption drop for consumers who simultaneously lose their job and equity in their houses is substantial. Using data from the Panel Study of Income Dynamics, we verify that homeowners smooth consumption more than renters, and that consumption smoothing improves when houses appreciate in the area of residence. We calibrate and simulate a model of endogenous homeownership and home-equity loans, and show that the model is able to reproduce ...
Working Paper
The Rise and Fall of Consumption in the 2000s
U.S. consumption has gone through steep ups and downs since the turn of the millennium, but the causes of these fluctuations are still imperfectly identified. We quantify the relative impact on consumption growth of income, unemployment, house prices, credit scores, debt, expectations, foreclosures, inequality, and refinancings for four subperiods: the ?dot-com recession? (2001-2003), the ?subprime boom? (2004-2006), the Great Recession (2007-2009), and the ?tepid recovery? (2010-2012). We document that the explanatory power of different factors varies by subperiods, implying that a ...
Working Paper
Risk sharing and industrial specialization ; regional and international evidence
We provide empirical evidence that risk sharing enhances specialization in production. To the best of our knowledge, this well-established and important theoretical proposition has not been tested before. Our empirical procedure is summarized as follows. First, we construct a measure of specialization in production, and calculate an index of specialization for each of the European Community (EC) and non-EC OECD countries, U.S. states, Canadian provinces, Japanese prefectures, Latin American countries, and regions of Italy, Spain, and the United Kingdom. Then, we estimate the degree of capital ...
Journal Article
Is risk sharing in the United States a regional phenomenon?
Regions within the United States routinely experience economic fluctuations that differ from those of other regions. For example, in the past few years, falling wheat prices have slowed growth in the value of total output in Kansas. Such developments can pose concerns for policymakers because macroeconomic tools like monetary policy affect all regions, not just specific regions. Fortunately, several mechanisms help insulate regional income and consumption from region-specific output fluctuations. Diversification of asset ownership across regions, made possible by national capital markets, ...