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Discussion Paper
Some Workers Have Been Hit Much Harder than Others by the Pandemic
Abel, Jaison R.; Deitz, Richard (2021-02-09)
As the COVID-19 pandemic took hold in the United States, in just two months—between February and April 2020—the nation saw well over 20 million workers lose their jobs, an unprecedented 15 percent decline. Since then, substantial progress has been made, but employment still remains 5 percent below its pre-pandemic level. However, not all workers have been affected equally. This post is the first in a three-part series exploring disparities in labor market outcomes during the pandemic—and represents an extension of ongoing research into heterogeneities and inequalities in people’s ...
Liberty Street Economics , Paper 20210209a

Working Paper
Optimal Dynamic Tax-Transfer Policies in Heterogeneous-Agents Economies
Chien, YiLi; Wen, Yi (2023-05-01)
In the design of an optimal tax-transfer system, there are two complementary conventional wisdoms: the labor-efficiency argument and the debt-efficiency argument. The former emphasizes the trade-off between redistribution and distortions in the labor market, while the latter emphasizes the trade-off between gains from monopoly rents and distortions in the asset market. We use an analytically tractable infinite-horizon model with both ex-ante and ex-post heterogeneity to show that neither argument is complete in the design of the tax-transfer system. Instead, in Aiyagari-type models the ...
Working Papers , Paper 2023-009

Working Paper
Credit Enforcement Cycles
Drozd, Lukasz A.; Serrano-Padial, Ricardo (2017-08-21)
Empirical evidence suggests that widespread financial distress, by disrupting enforcement of credit contracts, can be self-propagatory and adversely affect the supply of credit. We propose a unifying theory that models the interplay between enforcement, borrower default decisions, and the provision of credit. The central tenets of our framework are the presence of capacity constrained enforcement and borrower heterogeneity. We show that, despite heterogeneity, borrowers tend to coordinate their default choices, leading to fragility and to credit rationing. Our model provides a rationale for ...
Working Papers , Paper 17-27

Working Paper
Bubbles and Leverage: A Simple and Unified Approach
Bogusz, Theodore (2013-11-13)
In this paper, we lay out a simple framework that captures much of what the theoretical literature has to say about the role of credit in systemically important asset booms and busts. In addition, we suggest ways in which to incorporate physical investment in the bubble asset as well as monetary policy.
Working Paper Series , Paper WP-2013-21

Working Paper
Wealth Inequality and Return Heterogeneity During the COVID-19 Pandemic
Kartashova, Katya; Zhou, Xiaoqing (2021-11-10)
Wealth inequality in the U.S., measured by the top 1% wealth share, experienced dramatic changes in the first year of the COVID-19 pandemic. Economic theory suggests that the key to understanding wealth inequality is heterogeneity in the return to net worth across households. To understand the dynamics of wealth inequality during the COVID-19 pandemic, we develop a novel methodology that allows us to estimate the returns to net worth for different groups of households at relatively high frequency. We show that portfolio heterogeneity and asset price movements are the main determinants of ...
Working Papers , Paper 2114

Working Paper
Earnings Dynamics and Its Intergenerational Transmission: Evidence from Norway
Ozkan, Serdar; Salgado, Sergio; Halvorsen, Elin (2022-07-07)
Using administrative data, we provide an extensive characterization of labor earnings dynamics in Norway. Some of our findings are as follows. (i) Norway has not been immune to the increase in top earnings inequality seen in other countries. (ii) The earnings distribution compresses in the bottom 90% over the life cycle but expands in the top 10%. (iii) The earnings growth distribution is left skewed and leptokurtic, and the extent of these nonnormalities varies with age and past income. Linking individuals to their parents, we also investigate the intergenerational transmission of income ...
Working Papers , Paper 2021-015

Report
Consumption heterogeneity, employment dynamics, and macroeconomic co-movement
Eusepi, Stefano; Preston, Bruce (2009)
Real-business-cycle models necessarily rely on total factor productivity shocks to explain the observed co-movement between consumption, investment, and hours. However, an emerging body of evidence identifies "investment shocks" as important drivers of business cycles. This paper shows that a neoclassical model consistent with observed heterogeneity in labor supply and consumption across employed and nonemployed can generate co-movement in response to fluctuations in the marginal efficiency of investment. Estimation reveals that these shocks explain the bulk of business-cycle variance in ...
Staff Reports , Paper 399

Discussion Paper
Who Borrows for College—and Who Repays?
Lee, Donghoon; Haughwout, Andrew F.; Van der Klaauw, Wilbert; Scally, Joelle (2019-10-09)
Student loans are increasingly a focus of discourse among politicians, policymakers, and the news media, resulting in a range of new ideas to address the swelling aggregate debt. Evaluating student loan policy proposals requires understanding the challenges faced by student borrowers. In this post, we explore the substantial variation in the experiences of borrowers and consider the distributional effects of various policy options.
Liberty Street Economics , Paper 20191009

Discussion Paper
Medicare and Financial Health across the United States
Goldsmith-Pinkham, Paul; Wallace, Jacob; Pinkovskiy, Maxim L. (2020-07-08)
Consumer financial strain varies enormously across the United States. One pernicious source of financial strain is debt in collections—debt that is more than 120 days past due and that has been sold to a collections agency. In Massachusetts, the average person has less than $100 in collections debt, while in Texas, the average person has more than $300. In this post, we discuss our recent staff report that exploits the fact that virtually all Americans are universally covered by Medicare at 65 to show that health insurance not only improves financial health on average, but also is a major ...
Liberty Street Economics , Paper 20200708e

Discussion Paper
Understanding the Racial and Income Gap in COVID-19: Social Distancing, Pollution, and Demographics
Chakrabarti, Rajashri; Pinkovskiy, Maxim L.; http://fedora:8080/fcrepo/rest/objects/authors/; Meyerson, Lindsay (2021-01-12)
This is the third post in a series looking to explain the gap in COVID-19 intensity by race and by income. In the first two posts, we have investigated whether comorbidities, uninsurance, hospital resources, and home and transit crowding help explain the income and minority gaps. Here, we continue our investigation by looking at three additional potential channels: the fraction of elderly people, pollution, and social distancing at the beginning of the pandemic in the county. We aim to understand whether these three factors affect overall COVID-19 intensity, whether the income and racial gaps ...
Liberty Street Economics , Paper 20210112c

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