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Working Paper
Scarred Consumption
We show that prior lifetime experiences can "scar" consumers. Consumers who have lived through times of high unemployment exhibit persistent pessimism about their future financial situation and spend significantly less, controlling for the standard life-cycle consumption factors, even though their actual future income is uncorrelated with past experiences. Due to their experience-induced frugality, scarred consumers build up more wealth. We use a stochastic lifecycle model to show that the negative relationship between past experiences and consumption cannot be generated by financial ...
Working Paper
Jointly Estimating Macroeconomic News and Surprise Shocks
This paper clarifies the conditions under which the state-of-the-art approach to identifying TFP news shocks in Kurmann and Sims (2021, KS) identifies not only news shocks but also surprise shocks. We examine the ability of the KS procedure to recover responses to these shocks from data generated by a conventional New Keynesian DSGE model. Our analysis shows that the KS response estimator tends to be strongly biased even in the absence of measurement error. This bias worsens in realistically small samples, and the estimator becomes highly variable. Incorporating a direct measure of TFP news ...