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Jel Classification:E21 

Working Paper
Consumption Heterogeneity: Micro Drivers and Macro Implications

This paper explores the microfoundations of consumption models and quantifies the macro implications of consumption heterogeneity. We propose a new empirical method to estimate the response of consumption to permanent and transitory income shocks for different groups of households. We then apply this method to administrative data from Denmark. The large sample size, along with detailed household balance sheet information, allows us to finely divide the population along relevant dimensions. We find that households that stand to lose from an interest rate hike are significantly more responsive ...
Finance and Economics Discussion Series , Paper 2020-005

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 ...
International Finance Discussion Papers , Paper 1167

Working Paper
Housing Choices and Their Implications for Consumption Heterogeneity

International Finance Discussion Papers , Paper 1249

Working Paper
Household Debt and the Heterogeneous Effects of Forward Guidance

We develop an incomplete-markets heterogeneous agent New-Keynesian (HANK) model in which households are allowed to lend and borrow, subject to a borrowing constraint. We show that, in this framework, forward guidance, that is the promise by the central bank to lower future interest rates, can be a powerful policy tool, especially when the economy is in a liquidity trap. In our model, the power of forward guidance is amplified by three redistributive channels, absent in a representative agent new- Keynesian model (RANK) or in a HANK model without private debt. First, expected lower rates imply ...
International Finance Discussion Papers , Paper 1267

Working Paper
Default Risk and Private Student Loans: Implications for Higher Education Policies

The private market for student loans has become an important source of college financing in the United States. Unlike government student loans, the terms on student loans in the private market are based on credit status. We quantify the importance of the private market for student loans and of credit status for college investment in a general equilibrium heterogeneous life-cycle economy. We find that students with good credit status invest in more college education (compared to those with bad credit status) and that this effect is more pronounced for low-income students. Furthermore, results ...
Finance and Economics Discussion Series , Paper 2014-66

Working Paper
Learning, Rare Disasters, and Asset Prices

In this paper, we examine how learning about disaster risk affects asset pricing in an endowment economy. We extend the literature on rare disasters by allowing for two sources of uncertainty: (1) the lack of historical data results in unknown parameters for the disaster process, and (2) the disaster takes time to unfold and is not directly observable. The model generates time variation in the risk premium through Bayesian updating of agents' beliefs regarding the likelihood and severity of disaster realization. The model accounts for the level and volatility of U.S. equity returns and ...
Finance and Economics Discussion Series , Paper 2013-85

Working Paper
Measuring Aggregate Housing Wealth : New Insights from an Automated Valuation Model

We construct a new measure of aggregate U.S. housing wealth based on Zillow?s Automated Valuation Model (AVM). AVMs offer advantages over other methods because they are based on recent market transaction prices, utilize large datasets which include property characteristics and local geographic variables, and are updated frequently with little lag. However, using Zillow?s AVM to measure aggregate housing wealth requires overcoming several challenges related to the representativeness of the Zillow sample. We propose methods that address these challenges and generate a new estimate of aggregate ...
Finance and Economics Discussion Series , Paper 2018-064

Working Paper
The Household Expenditure Response to a Consumption Tax Rate Increase

This study measures the effect of an increase in Japan's Value Added Tax rate on the timing of household expenditures and consumption, which do not necessarily coincide. The analysis finds that durable and storable expenditures surged in the month prior to the tax rate increase, fell sharply upon implementation, but quickly returned to their previous long-run levels. Non-storable non-durable expenditures increased slightly in the month prior to the tax rate increase, but were otherwise unresponsive. A dynamic structural model of household consumption reveals that the observed expenditure ...
Finance and Economics Discussion Series , Paper 2017-035

Working Paper
Who Values Access to College?

A first glance at US data suggests that college -- given its mean returns and sharply subsidized cost for all enrollees -- could be of great value to most. Using an empirically-disciplined human capital model that allows for variation in college readiness, we show otherwise. While the top decile of valuations is indeed large (40 percent of consumption), nearly half of high school completers place zero value on access to college. Subsidies to college currently flow to those already best positioned to succeed and least sensitive to them. Even modestly targeted alternatives may therefore improve ...
Finance and Economics Discussion Series , Paper 2019-015

Working Paper
In Search of Lost Time Aggregation

In 1960, Working noted that time aggregation of a random walk induces serial correlation in the first difference that is not present in the original series. This important contribution has been overlooked in a recent literature analyzing income and consumption in panel data. I examine Blundell, Pistaferri and Preston (2008) as an important example for which time aggregation has quantitatively large effects. Using new techniques to correct for the problem, I find the estimate for the partial insurance to transitory shocks, originally estimated to be 0.05, increases to 0.24. This larger ...
Finance and Economics Discussion Series , Paper 2019-075

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Athreya, Kartik B. 12 items

Nakajima, Makoto 10 items

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Luengo-Prado, Maria Jose 8 items

Carroll, Daniel R. 7 items

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