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Jel Classification:D80 

Working Paper
Risk Aversion at the Country Level

In this paper we provide estimates of the coefficient of relative risk aversion for 80 countries using data on self-reports of personal well-being from the Gallup World Poll. For most countries we cannot reject the null hypothesis that the coefficient of relative risk aversion equals 1. We conclude that our result supports the use of the log utility function in numerical simulations.
Working Papers , Paper 2014-5

Working Paper
Inflation Levels and (In)Attention

Inflation expectations are key determinants of economic activity and are central to the current policy debate about whether inflation expectations will remain anchored in the face of recent pandemic-related increases in inflation. This paper explores evidence of inattention by constructing two different measures of consumers’ inattention and documents greater inattention when inflation is low. This suggests that there is indeed a risk of an acceleration in the increases in inflation expectations if actual inflation remains high.
Working Papers , Paper 22-4

Working Paper
The Impact of Global Uncertainty on the Global Economy, and Large Developed and Developing Economies

Global uncertainty shocks are associated with a sharp decline in global inflation, global growth and in the global interest rate. Over 1981 to 2014 global financial uncertainty forecasts 18.26% and 14.95% of the variation in global growth and global inflation respectively. Global uncertainty shocks have more protracted, statistically significant and substantial effects on global growth, inflation and interest rate than U.S. uncertainty shocks. U.S. uncertainty lags global uncertainty by one month. When controlling for domestic uncertainty, the decline in output following a rise in global ...
Globalization Institute Working Papers , Paper 303

Working Paper
Optimal Fiscal Policy with Recursive Preferences

I study the implications of recursive utility, a popular preference specification in macrofinance, for the design of optimal fiscal policy. Standard Ramsey tax-smoothing prescriptions are substantially altered. The planner overinsures by taxing less in bad times and more in good times, mitigating the effects of shocks. At the intertemporal margin, there is a novel incentive for introducing distortions that can lead to an ex-ante capital subsidy. Overall, optimal policy calls for a much stronger use of debt returns as a fiscal absorber, leading to the conclusion that actual fiscal policy is ...
FRB Atlanta Working Paper , Paper 2013-07

Working Paper
The cost of fiscal policy uncertainty: industry evidence of its impact on the labor market

The anemic pace of the recovery of the U.S. economy from the Great Recession has frequently been blamed on heightened uncertainty, much of which concerns the nation's fiscal policy. Intuition suggests that increased policy uncertainty likely has different impacts on industries with different exposure to government actions. Such heterogeneity can help identify the effect of shocks due to policy uncertainty. This study uses industry data to explore whether policy uncertainty indeed affects the dynamics of employment during this recovery, and particularly whether it has a differential impact on ...
Working Papers , Paper 13-22

Working Paper
Insurance and Inequality with Persistent Private Information

We study optimal insurance contracts for an agent with Markovian private information. Our main results characterize the implications of constrained efficiency for long-run welfare and inequality. Under minimal technical conditions, there is Absolute Immiseration: in the long run, the agent?s consumption and utility converge to their lower bounds. When types are persistent and utility is unbounded below, there is Relative Immiseration: low-type agents are immiserated at a faster rate than high-type agents, and ?pathwise welfare inequality? grows without bound. These results extend and ...
Working Papers , Paper 2018-20

Working Paper
Insurance and Inequality with Persistent Private Information

This paper studies the optimal tradeoff between insurance and inequality in economies with persistent private information.We consider a principal-agent model in which the principal insures the agent against privately-observed shocks to his endowment, which follows an ergodic finite-state Markov chain that may exhibit arbitrary serial correlation. The optimal contract always induces immiseration: the agent’s consumption and utility become arbitrarily negative in the long run. When the endowment is positively serially correlated, the optimal contract provides increasingly high-powered ...
Working Papers , Paper 2018-020

Journal Article
Risk Aversion at the Country Level

This article estimates the coefficient of relative risk aversion for 75 countries using data on self-reports of personal well-being from the 2006 Gallup World Poll. The analysis suggests that the coefficient of relative risk aversion varies closely around 1, which corresponds to a logarithmic utility function. The authors conclude that their results support the use of the log utility function in numerical simulations of economic models.
Review , Volume 97 , Issue 1 , Pages 53-66

Report
Personal experiences and expectations about aggregate outcomes

We use novel survey data to estimate how personal experiences affect household expectations about aggregate economic outcomes in housing and labor markets. We exploit variation in locally experienced house prices to show that individuals systematically extrapolate from recent locally experienced home prices when asked for their expectations about U.S. house price changes over the next year. In addition, higher volatility of locally experienced house prices causes respondents to report a wider distribution over expected future national house price movements. We find similar results for labor ...
Staff Reports , Paper 748

Working Paper
Inflation targeting and the anchoring of inflation expectations: cross-country evidence from consensus forecasts

Using survey data of inflation expectations across a 36 developed and developing countries, this paper examines whether the adoption of inflation targeting has helped to anchor inflation expectations. We examine the response of inflation expectations following a shock to inflation, inflation expectations, and oil prices. For the 13 countries that adopted inflation targeting midway through the time period used in this study, there is a significant difference in the responses between the earlier and the later subperiods. A shock leads to a positive, significant, and persistent increase ...
Globalization Institute Working Papers , Paper 174

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