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Author:Karabarbounis, Marios 

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 multiregional, New Keynesian model with heterogeneous agents, ...
Working Paper Series , Paper 2018-04

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.
FRBSF Economic Letter

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 ...
Economic Quarterly , Issue 1Q , Pages 51-85

Working Paper
Heterogeneity in labor supply elasticity and optimal taxation

Standard public finance principles imply that workers with more elastic labor supply should face smaller tax distortions. This paper quantitatively tests the potential of such an idea within a life-cycle model with heterogeneous two-member households. I find that younger and older-wealthier households have a larger labor supply elasticity than middle-aged households. The same is true for household members who are not the sole financial provider in the unit relative to primary breadwinners. To decrease inefficient distortions I study a tax system that uses information on the age, assets, and ...
Working Paper , Paper 13-13

Journal Article
A Life-Cycle Model with Individual Volatility Dynamics

This article solves a heterogeneous-agents, life-cycle model with idiosyncratic, time-varying volatility. Volatility is modeled based on an ARCH specification. I compare the life-cycle behavior of savings and consumption in a model with idiosyncratic volatility versus typical models with constant income risk. Idiosyncratic volatility generates a larger incentive to save precautionarily and, as a result, a lower consumption inequality.
Economic Quarterly , Volume 4Q , Pages 159-171

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.
Economic Quarterly , Issue 1Q , Pages 1-17

Briefing
How Did Pandemic UI Benefits Affect Employment Recovery in Local Industry Markets?

We analyze the employment recovery of low-wage establishments relative to the employment recovery of high-wage establishments within local labor markets, and we find a slower recovery in low-wage establishments. We associate the difference with the expanded generosity of pandemic unemployment insurance (UI) supplements, which have a larger negative effect on the job-filling rate of low-paying establishments. We use a model of labor search to translate our establishment-level observations into a disincentive effect of pandemic UI benefits at the worker level.
Richmond Fed Economic Brief , Volume 22 , Issue 44

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 ...
Working Paper , Paper 19-1

Working Paper
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. Ignoring this cyclical pattern of composition changes in the consumption basket makes the labor-market wedge -- a measure of inefficiency that reflects the gap between the marginal rate of substitution and the real wage -- appear to be more volatile than it actually is. Based on the household expenditure pattern across 10 consumption categories in the Consumer Expenditure Survey, we show that taking into account these composition changes can explain 6-15% of the cyclicality in the measured ...
Working Paper , Paper 18-13

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 ...
Economic Quarterly , Issue 4Q , Pages 303-317

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