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Working Paper
Assessing bankruptcy reform in a model with temptation and equilibrium default
Nakajima, Makoto (2015-03-09)
A life-cycle model with equilibrium default in which consumers with and without temptation coexist is constructed to evaluate the 2005 bankruptcy law reform and other counterfactual reforms. The calibrated model indicates that the 2005 bankruptcy reform achieves its goal of reducing the number of bankruptcy filings, as seen in the data, but at the cost of loss in social welfare. The creditor-friendly reform provides borrowers with a stronger commitment to repay and thus yields lower default premia and better consumption smoothing. However, those who borrow and default due to temptation or ...
Working Papers , Paper 15-12

Working Paper
Real Rates and Consumption Smoothing in a Low Interest Rate Environment: The Case of Japan
Lecznar, Jonathan; Lubik, Thomas A. (2017-05-18)
We study the dynamics of consumption, the real interest rate, and measures of labor input in Japan over the period from 1985-2014. We identify structural breaks in macroeconomic aggregates during the 1990s and associate them with the zero interest rate policy pursued by the Bank of Japan and the surprise increase in the consumption tax rate in April 1997. Formal estimation using the Generalized Methods of Moments shows that the mid-1990s are characterized by breaks in the structural parameters governing household consumption and labor supply decisions. Specifically, following the tax hike and ...
Working Paper , Paper 17-8

Journal Article
Why Are Americans Saving So Much of Their Income?
Smith, Andrew Lee (2020-12-04)
For much of 2020, Americans have saved a greater share of their income than ever before. This increase in savings appears to be predominantly driven by precautionary motives. Therefore, consumers may be reluctant to draw down these savings in the future to support spending.
Economic Bulletin

Report
Optimal Monetary Policy According to HANK
Dogra, Keshav; Challe, Edouard; Acharya, Sushant (2020-02-01)
We study optimal monetary policy in a heterogeneous agent new Keynesian economy. A utilitarian planner seeks to reduce consumption inequality, in addition to stabilizing output gaps and inflation. The planner does so both by reducing income risk faced by households, and by reducing the pass-through from income to consumption risk, trading off the benefits of lower inequality against productive inefficiency and higher inflation. When income risk is countercyclical, policy curtails the fall in output in recessions to mitigate the increase in inequality. We uncover a new form of time ...
Staff Reports , Paper 916

Working Paper
Do Stay-at-Home Orders Cause People to Stay at Home? Effects of Stay-at-Home Orders on Consumer Behavior
Alexander, Diane; Karger, Ezra (2020-04-17)
We link the county-level rollout of stay-at-home orders to anonymized cellphone records and consumer spending data. We document three patterns. First, stay-at-home orders caused people to stay at home: county-level measures of mobility declined by between 9% and 13% by the day after the stay-at-home order went into effect. Second, stay-at-home orders caused large reductions in spending in sectors associated with mobility: restaurants and retail stores. However, food delivery sharply increased after orders went into effect. Third, there is substantial county-level heterogeneity in consumer ...
Working Paper Series , Paper WP-2020-12

Report
What would you do with $500? Spending responses to gains, losses, news, and loans
Kaplan, Greg; Fuster, Andreas; Zafar, Basit (2018-03-01)
We use survey questions about spending to investigate features of propensities to consume that are useful for distinguishing between consumption theories. Asking households about their intended spending under various scenarios, we find that 1) responses to unanticipated gains are vastly heterogeneous (either zero or substantially positive), 2) responses to losses are much larger and more widespread than responses to gains, and 3) even those with large responses to gains do not respond to news about future gains. These three findings suggest that limited access to disposable resources is an ...
Staff Reports , Paper 843

Working Paper
Health Shocks, Health Insurance, Human Capital, and the Dynamics of Earnings and Health
Capatina, Elena; Keane, Michael P. (2023-11-15)
We specify and calibrate a life-cycle model of labor supply and savings incorporating health shocks and medical treatment decisions. Our model features endogenous wage formation via human capital accumulation, employer-sponsored health insurance, and means-tested social insurance. We use the model to study the effects of health shocks on health, labor supply and earnings, and to assess how health shocks contribute to earnings inequality. We also simulate provision of public insurance to agents who lack employer-sponsored insurance. The public insurance program substantially increases medical ...
Opportunity and Inclusive Growth Institute Working Papers , Paper 080

Working Paper
Bretton Woods and the Reconstruction of Europe
Restrepo-Echavarria, Paulina; Wright, Mark L. J.; Ohanian, Lee E.; Van Patten, Diana (2019-10-13)
The Bretton Woods international financial system, which was in place from roughly 1949 to 1973, is the most significant modern policy experiment to attempt to simultaneously manage international payments, international capital flows, and international currency values. This paper uses an international macroeconomic accounting methodology to study the Bretton Woods system and finds that it: (1) significantly distorted both international and domestic capital markets and hence the accumulation and allocation of capital; (2) significantly slowed the reconstruction of Europe, albeit while limiting ...
Working Papers , Paper 2019-30

Working Paper
Consumption in the Great Recession: The Financial Distress Channel
Athreya, Kartik B.; Sanchez, Juan M.; Mather, Ryan; Mustre-del-Rio, Jose (2019-08-29)
During the Great Recession, the collapse of consumption across the US varied greatly but systematically with house-price declines. Our message is that household financial health matters for understanding this relationship. Two facts are essential for our finding: (1) the decline in house prices led to an increase in household financial distress (FD) prior to the decline in income during the recession, and (2) at the zip-code level, the prevalence of FD prior to the recession was positively correlated with house-price declines at the onset of the recession. We measure the power of the ...
Working Paper , Paper 19-13

Working Paper
Financial Distress and Macroeconomic Risks
Athreya, Kartik B.; Sanchez, Juan M.; Mather, Ryan; Mustre-del-Rio, Jose (2021-10-22)
This paper investigates how, and how much, household financial distress (FD), arising from allowing debts to go unpaid, matters for the aggregate and cross-sectional consumption responses to macroeconomic risk. Through a battery of structural models, we show that FD can affect consumption responses through three channels: (1) as another margin of adjustment to shocks (direct channel); (2) because its persistence implies a significant degree of preference heterogeneity (indirect channel); and (3) because it can exacerbate macroeconomic risks whenever it is more severe in the hardest-hit ...
Working Papers , Paper 2019-025

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