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Working Paper
Stock Market Investment: The Role of Human Capital
Participation in the stock market is limited, especially early in life. By contrast, human capital investment is widespread, especially early in life. Returns to equity are constant across households, while returns to human capital vary. The contribution of this paper is to demonstrate that once human capital investment is allowed for and, critically, disciplined to match observed dispersion in earnings, an entirely standard model of portfolio choice delivers stock market participation rates consistent with the data over the entire life cycle. Moreover, we show that endogenizing human capital ...
Working Paper
The Postwar Conquest of the Home Ownership Dream
Post-World War II witnessed the largest housing boom in recent history. This paper develops a quantitative equilibrium model of tenure choice to analyze the key determinants in the co-movement between home-ownership and house prices over the period 1940-1960. The parameterized model matches key features and is capable of accounting for the observed housing boom. The key driver in understanding this boom is an asymmetric productivity change that favors the goods sector relative to the construction sector. Other factors such as demographics, income risk, and government policy are important ...
Working Paper
Household Consumption and Savings over the Life Cycle: The Roles of Demographics and Durables
The canonical prediction of life-cycle models, that individuals smooth consumption over their lifetime, has been mostly tested for developed countries and found little empirical support. We provide a novel, developing country perspective by analyzing patterns of life-cycle consumption, income and savings rates in India. In contrast to the U.S., Indian households exhibit no growth in nondurable consumption expenditures after adjusting for family size. We present evidence that saving for lumpy investments in consumer durables is a key driver of high savings rates and flat nondurable consumption ...