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Jel Classification:D84 

Discussion Paper
Consumers Increasingly Expect Additional Government Support amid COVID-19 Pandemic

The New York Fed’s Center for Microeconomic Data released results today from its April 2020 SCE Public Policy Survey, which provides information on consumers' expectations regarding future changes to a wide range of fiscal and social insurance policies and the potential impact of these changes on their households. These data have been collected every four months since October 2015 as part of our Survey of Consumer Expectations (SCE). Given the ongoing COVID-19 pandemic, households face significant uncertainty about their personal situations and the general economic environment when forming ...
Liberty Street Economics , Paper 20200526b

Discussion Paper
Job Seekers’ Beliefs and the Causes of Long-Term Unemployment

In addition to its terrible human toll, the COVID-19 pandemic has also caused massive disruption in labor markets. In the United States alone, more than 25 million people lost their jobs during the first wave of the pandemic. While many have returned to work since then, a large number have remained unemployed for a prolonged period of time. The number of long-term unemployed (defined as those jobless for twenty-seven weeks or longer) has surged from 1.1 million to almost 4 million. An important concern is that the long-term unemployed face worse employment prospects, but prior work has ...
Liberty Street Economics , Paper 20210129

Working Paper
Financial contracting with enforcement externalities

Contract enforceability in financial markets often depends on the aggregate actions of agents. For example, high default rates in credit markets can delay legal enforcement or reduce the value of collateral, incentivizing even more defaults and potentially affecting credit supply. We develop a theory of credit provision in which enforceability of individual contracts is linked to aggregate behavior. The central element behind this link is enforcement capacity, which is endogenously determined by investments in enforcement infrastructure. Our paper sheds new light on the emergence of credit ...
Working Papers , Paper 16-1

Working Paper
Modeling the Consumption Response to the CARES Act

To predict the effects of the 2020 U.S. CARES act on consumption, we extend a model that matches responses of households to past consumption stimulus packages. The extension allows us to account for two novel features of the coronavirus crisis. First, during the lockdown, many types of spending are undesirable or impossible. Second, some of the jobs that disappear during the lockdown will not reappear when it is lifted. We estimate that, if the lockdown is short-lived, the combination of expanded unemployment insurance benefits and stimulus payments should be sufficient to allow a swift ...
Finance and Economics Discussion Series , Paper 2020-077

Working Paper
Fiscal Expansions in the Era of Low Real Interest Rates

Low natural real interest rates limit the power of monetary policy to revive the economy due to the zero lower bound (ZLB) on the nominal interest rate. Fiscal stabilization via higher government debt is frequently recommended as a policy to raise the natural real interest rate. This paper builds a non-Ricardian framework to study the tradeoffs associated with a debt-financed fiscal expansion and show that even in a low real interest rate environment, higher debt doesn’t necessarily raise the real interest rate. The effect of the expansion is non-monotonic: Increasing debt raises the ...
Working Papers , Paper 20-11

Working Paper
Financial Contracting with Enforcement Externalities

We study the negative feedback loop between the aggregate default rate and the efficacy of enforcement in a model of debt-financed entrepreneurial activity. The novel feature of our model is that enforcement capacity is accumulated ex ante and thus subject to depletion ex post. We characterize the effect of shocks that deplete enforcement resources on the aggregate default rate and credit supply. In the model default decisions by entrepreneurs are strategic complements, leading to multiple equilibria. We propose a global game selection to overcome equilibrium indeterminacy and show how shocks ...
Working Papers , Paper 18-21

Working Paper
Subjective Earnings Risk

Earnings risk is central to economic analysis. While this risk is essentially subjective, it is typically inferred from administrative data. Following the lead of Dominitz and Manski (1997), we introduce a survey instrument to measure subjective earnings risk. We pay particular attention to the expected impact of job transitions on earnings. A link with administrative data provides multiple credibility checks. It also shows subjective earnings risk to be far lower than its administratively- estimated counterpart. This divergence arises because expected earnings growth is heterogeneous, even ...
Working Papers , Paper 2023-003

Working Paper
A Comprehensive Empirical Evaluation of Biases in Expectation Formation

We revisit predictability of forecast errors in macroeconomic survey data, which is often taken as evidence of behavioral biases at odds with rational expectations. We argue that to reject rational expectations, one must be able to predict forecast errors out of sample. However, the regressions used in the literature often perform poorly out of sample. The models seem unstable and could not have helped to improve forecasts with access only to available information. We do find some notable exceptions to this finding, in particular mean bias in interest rate forecasts, that survive our ...
Finance and Economics Discussion Series , Paper 2023-042

Working Paper
Subjective Earnings Risk

We introduce a survey instrument to measure earnings risk allowing for the possibility of quitting or being fired from the current job. We find these transitions to be the key drivers of subjective risk. A link with administrative data provides multiple credibility checks for correspondingly aggregated data. Yet it reveals subjective earning risk to be many times smaller than traditional estimates imply even when conditioning richly on demographics and job history. A life-cycle search model calibrated to match data on job transitions and earnings can replicate the distribution of subjective ...
Working Papers , Paper 2023-003

Working Paper
The Transmission of International Monetary Policy Shocks on Firms' Expectations

Motivated by the dominant role of the US dollar, we explore how monetary policy (MP) shocks in the US can affect a small open economy through the expectation channel. We combine data from a panel survey of firms' expectations in Uruguay with granular information about firms' debt position and total imports on a monthly basis. We show that a contractionary MP shock in the US reduces firms' inflation and cost expectations in Uruguay. This result contrasts with the inflationary effect of this shock on the Uruguayan economy, suggesting uncertainty about the policy regime. We discuss the issues ...
Working Papers , Paper 23-01

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