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Author:Eyigungor, Burcu 

Working Paper
Incumbency Disadvantage in U.S. National Politics

We document that postwar U.S. national elections show a strong pattern of ?incumbency disadvantage?: If the presidency has been held by a party for some time, that party tends to lose seats in Congress. A model of partisan politics with policy inertia and elections is presented to explain this finding. We also find that the incumbency disadvantage comes sooner for Democrats than Republicans. Based on the observed Democratic bias in Congress (Democrats, on average, hold more seats in the House and Senate than Republicans), the model also offers an explanation for the second finding.
Working Papers , Paper 16-36

Working Paper
Continuous Markov equilibria with quasi-geometric discounting

We prove that the standard quasi-geometric discounting model used in dynamic consumer theory and political economics does not possess continuous Markov perfect equilibria (MPE) if there is a strictly positive lower bound on wealth. We also show that, at points of discontinuity, the decision maker strictly prefers lotteries over the next period's assets. We then extend the standard model to have lotteries and establish the existence of an MPE with continuous decision rules. The models with and without lotteries are numerically compared, and it is shown that the model with lotteries behaves ...
Working Papers , Paper 14-6

Working Paper
Maturity, indebtedness, and default risk

We present a novel and tractable model of long-term sovereign debt. We make two sets of contributions. First, on the substantive side, using Argentina as a test case we show that unlike one-period debt models, our model of long-term sovereign debt is capable of accounting for the average spread, the average default frequency, and the average debt-to-output ratio of Argentina over the 1991-2001 period without any deterioration in the model's ability to account for Argentina's cyclical facts. Using our calibrated model we determine what Argentina's debt, default frequency and welfare would have ...
Working Papers , Paper 09-2

Working Paper
Policy Inertia, Election Uncertainty and Incumbency Disadvantage of Political Parties

We document that postwar U.S. elections show a strong pattern of ?incumbency disadvantage?: If a party has held the presidency of the country or the governorship of a state for some time, that party tends to lose popularity in the subsequent election. We show that this fact can be explained by a combination of policy inertia and unpredictability in election outcomes. A quantitative analysis shows that the observed magnitude of incumbency disadvantage can arise in several di?erent models of policy inertia. Normative and positive implications of policy inertia leading to incumbency disadvantage ...
Working Papers , Paper 19-40

Working Paper
Foreclosures and house price dynamics: a quantitative analysis of the mortgage crisis and the foreclosure prevention policy

This paper is superseded by WP 15-15 <p>The authors construct a quantitative equilibrium model of the housing market in which an unanticipated increase in the supply of housing triggers default mortgages via its effect on house prices. The decline in house prices creates an incentive to increase the consumption of housing space, but leverage makes it costly for homeowners to sell their homes and buy bigger ones (they must absorb large capital losses). Instead, leveraged households find it advantageous to default and rent housing space. Since renters demand less housing space than homeowners, ...
Working Papers , Paper 09-22

Working Paper
Incumbency Disadvantage of Political Parties: The Role of Policy Inertia and Prospective Voting

We document that postwar U.S. elections show a strong pattern of ?incumbency disadvantage": If a party has held the presidency of the country or the governorship of a state for some time, that party tends to lose popularity in the subsequent election. To explain this fact, we employ Alesina and Tabellini's (1990) model of partisan politics, extended to have elections with prospective voting. We show that inertia in policies, combined with sufficient uncertainty in election outcomes, implies incumbency disadvantage. We find that inertia can cause parties to target policies that are more ...
Working Papers , Paper 19-7

Working Paper
The Firm Size and Leverage Relationship and Its Implications for Entry and Concentration in a Low Interest Rate World

Larger firms (by sales or employment) have higher leverage. This pattern is explained using a model in which firms produce multiple varieties and borrow with the option to default against their future cash ow. A variety can die with a constant probability, implying that bigger firms (those with more varieties) have lower coefficient of variation of sales and higher leverage. A lower risk-free rate benefits bigger firms more as they are able to lever more and existing firms buy more of the new varieties arriving into the economy. This leads to lower startup rates and greater concentration of ...
Working Papers , Paper 19-18

Working Paper
Debt dilution and seniority in a model of defaultable sovereign debt

An important source of inefficiency in long-term debt contracts is the debt dilution problem, wherein a borrower ignores the adverse impact of new borrowing on the market value of outstanding debt and, therefore, borrows too much and defaults too frequently. A commonly proposed remedy to the debt dilution problem is seniority of debt, wherein creditors who lent first are given priority in any bankruptcy or restructuring proceedings. The goal of this paper is to incorporate seniority in a quantitatively realistic, infinite horizon model of sovereign debt and default and examine, both ...
Working Papers , Paper 12-14

Working Paper
Maturity, indebtedness, and default risk

In this paper, the authors present a new approach to incorporating long-term debt into equilibrium models of unsecured debt and default. They make three sets of contributions. First, the authors advance the theory of sovereign debt begun in Eaton and Gersovitz (1981) by proving the existence of an equilibrium price function with the property that the interest rate on debt is increasing in the amount borrowed. Second, using Argentina as a test case, they show that unlike a one-period debt model, their model of long-term debt is capable of accounting for the average external debt-to-output ...
Working Papers , Paper 10-12

Working Paper
A tractable city model for aggregative analysis

An analytically tractable city model with external increasing returns is presented. The equilibrium city structure is either monocentric or decentralized. Regardless of which structure prevails, intracity variation in endogenous variables displays exponential decay from the city center, where the decay rates depend only on parameters. Given population, the equilibrium of the model is generically unique. Tractability permits explicit expressions for when a central business district (CBD) will emerge in equilibrium, how external increasing returns affect the steepness of downtown rent ...
Working Papers , Paper 15-37

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