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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 mutted, 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 Paper
Medical Expenses and Saving in Retirement: The Case of U.S. and Sweden
Many U.S. households have significant wealth late in life, contrary to the predictions of a simple life-cycle model. In this paper, we document stark differences between U.S. and Sweden regarding out-of-pocket medical and long-term-care expenses late in life, and use them to investigate their role in discouraging the elderly from dissaving. Using a consumption-saving model in retirement with significant uninsurable expense risk, we find that medical expense risk accounts for a quarter of the U.S.-Sweden difference in retirees' dissaving patterns. Furthermore, medical expense risk affects ...
Working Paper
Health-care reform or labor market reform? a quantitative analysis of the Affordable Care Act
An equilibrium model with ?rm and worker heterogeneity is constructed to analyze labor market and welfare implications of the Patient Protection and Affordable Care Act (ACA). Our model implies a signi?cant reduction in the uninsured rate from 22.6 percent to 5.6 percent. {{p}} The model predicts a moderate positive welfare gain from the ACA, due to redistribution of income through Health Insurance Subsidies at the Exchange as well as Medicaid expansion. About 2.1 million more part-time jobs are created under the ACA, in expense of 1.6 million full-time jobs, mainly because the link between ...
Working Paper
Doves for the Rich, Hawks for the Poor? Distributional Consequences of Monetary Policy
We build a New Keynesian business-cycle model with rich household heterogeneity. A central feature is that matching frictions render labor-market risk countercyclical and endogenous to monetary policy. Our main result is that a majority of households prefer substantial stabilization of unemployment even if this means deviations from price stability. A monetary policy focused on unemployment stabilization helps Main Street" by providing consumption insurance. It hurts Wall Street" by reducing precautionary saving and, thus, asset prices. On the aggregate level, household heterogeneity ...
Journal Article
Baby Boomers vs. Millennials Through Monetary Policy?
Monetary policy affects retired and working households differently. To maintain its commitment to stable prices and maximum employment in an aging society, the Fed may need to rethink monetary policy.
Journal Article
Taxing The 1 Percent
Raising taxes on top earners is often seen as a straightforward way to stem inequality. The trick is preserving efficient revenue generation and work incentives for the economy?s most productive contributors.
Journal Article
Understanding house-price dynamics
For most homeowners, housing is the single most important component of their nonpension wealth. Therefore, a change in house prices greatly affects the total wealth of many households. Furthermore, movements in house prices can affect people?s lives indirectly. For example, the surge in the number of mortgage defaults and foreclosures during the recent recession was triggered in part by a drop in house prices, and this surge damaged the health of the financial institutions that either directly or indirectly owned mortgage loans. In turn, the deteriorating health of the financial sector was ...
Journal Article
Everything you always wanted to know about reverse mortgages but were afraid to ask
Most people have probably heard of reverse mortgage loans. But even though these loans have been getting more attention lately, it?s possible that many people still aren?t sure about what reverse mortgages really are. This is not surprising, since reverse mortgages are a relatively new type of mortgage loan. Although reverse mortgages are currently used by only a small fraction of people, their popularity has been growing in recent years. In this article, Makoto Nakajima discusses reverse mortgage loans, particularly the most popular type, which is administered by the government. He discusses ...
Journal Article
The diverse impacts of the great recession
The Great Recession had a large negative impact on the U.S. economy. Asset prices, most notably stock and house prices, declined substantially, resulting in a loss in wealth for many American households. In this article, Makoto Nakajima documents how diverse households were affected in a variety of dimensions during the Great Recession, in particular between 2007 and 2009, using newly available data from the 2007-2009 Survey of Consumer Finances. He discusses why it is important to look at the data on households, rather than focusing on the aggregate data, and he reviews some recent studies ...
Journal Article
The redistributive consequences of monetary policy
Monetary policy is not intended to benefit one segment of the population at the expense of another by redistributing income and wealth. But as Makoto Nakajima explains, it is probably impossible to avoid such redistributive consequences.