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Keywords:Heterogeneous agents 

Working Paper
Universal Basic Income versus Unemployment Insurance

In this paper we compare the welfare effects of unemployment insurance (UI) with an universal basic income (UBI) system in an economy with idiosyncratic shocks to employment. Both policies provide a safety net in the face of idiosyncratic shocks. While the unemployment insurance program should do a better job at protecting the unemployed, it suffers from moral hazard and substantial monitoring costs, which may threaten its usefulness. The universal basic income, which is simpler to manage and immune to moral hazard, may represent an interesting alternative in this context. We work within a ...
Working Papers , Paper 2014-47

Working Paper
The Heterogeneous Effects of Government Spending : It’s All About Taxes

This paper investigates how government spending multipliers depend on the distribution of taxes across households. We exploit historical variations in the financing of spending in the U.S. since 1913 to show that multipliers are positive only when financed with more progressive taxes, and zero otherwise. We rationalize this finding within a heterogeneous-household model with indivisible labor supply. The model results in a lower labor responsiveness to tax changes for higher-income earners. In turn, spending financed with more progressive taxes induces a smaller crowding-out, and thus larger ...
International Finance Discussion Papers , Paper 1237

Working Paper
Optimal Public Debt with Life Cycle Motives

Public debt can be optimal in standard incomplete market models with infinitely lived agents, since the associated capital crowd-out induces a higher interest rate. The higher interest rate encourages individuals to save and, hence, better self-insure against idiosyncratic labor earnings risk. Even though individual savings behavior is a crucial determinant of the optimality of public debt, this class of economies abstracts from empirically observed life cycle savings patterns. Thus, this paper studies how incorporating a life cycle affects optimal public debt. We find that while the ...
Finance and Economics Discussion Series , Paper 2018-028

Working Paper
Generational War on Inflation: Optimal Inflation Rates for the Young and the Old

How does a grayer society affect the political decision-making regarding inflation rates? Is deflation preferred as a society ages? In order to answer these questions, we compute the optimal inflation rates for the young and the old respectively, and explore how they change with demographic factors, by using a New Keynesian model with overlapping generations. According to our simulation results, there indeed exists a tension between the young and the old on the optimal inflation rates, with the optimal inflation rates differing between generations. The rates can be significantly different ...
Globalization Institute Working Papers , Paper 372

Working Paper
Health-care reform or labor market reform? A quantitative analysis of the affordable care act

An equilibrium model with firm and worker heterogeneity is constructed to analyze labor market and welfare implications of the Patient Protection and Affordable Care Act, commonly called the Affordable Care Act (ACA). The authors? model implies a significant reduction in the uninsured rate from 22.6 percent to 5.6 percent. The model predicts a moderate positive welfare gain from the ACA because of the redistribution of income through health insurance subsidies at the exchange as well as the Medicaid expansion. About 2.1 million more part-time jobs are created under the ACA at the expense of ...
Working Papers , Paper 15-34

Working Paper
A tale of two commitments: equilibrium default and temptation

I construct the life-cycle model with equilibrium default and preferences featuring temptation and self-control. The model provides quantitatively similar answers to positive questions such as the causes of the observed rise in debt and bankruptcies and macroeconomic implications of the 2005 bankruptcy reform, as the standard model without temptation. However, the temptation model provides contrasting welfare implications, because of overborrowing when the borrowing constraint is relaxed. Specifically, the 2005 bankruptcy reform has an overall negative welfare effect, according to the ...
Working Papers , Paper 14-1

Working Paper
Credit, bankruptcy, and aggregate fluctuations

We ask two questions related to how access to credit affects the nature of business cycles. First, does the standard theory of unsecured credit account for the high volatility and procyclicality of credit and the high volatility and countercyclicality of bankruptcy filings found in U.S. data? Yes, it does, but only if we explicitly model recessions as displaying countercyclical earnings risk (i.e., rather than having all households fare slightly worse than normal during recessions, we ensure that more households than normal fare very poorly). Second, does access to credit smooth aggregate ...
Working Papers , Paper 14-31

Working Paper
Assessing bankruptcy reform in a model with temptation and equilibrium default

A life-cycle model with equilibrium default in which consumers with and without temptation coexist is constructed to evaluate the 2005 bankruptcy law reform and other counterfactual reforms. The calibrated model indicates that the 2005 bankruptcy reform achieves its goal of reducing the number of bankruptcy filings, as seen in the data, but at the cost of loss in social welfare. The creditor-friendly reform provides borrowers with a stronger commitment to repay and thus yields lower default premia and better consumption smoothing. However, those who borrow and default due to temptation or ...
Working Papers , Paper 15-12


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