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Working Paper
Household's Balance Sheets and the Effect of Fiscal Policy
Ferri, Javier; Andres, Javier; Fuentes-Albero, Cristina; Bosca, Jose E. (2018-02-08)
Using the Panel Survey of Income Dynamics, we identify six household types as a function of their balance sheet composition. Since 1999, there has been a decline in the share of patient households and an increase in the share of impatient households with negative wealth. Using a DSGE model with search and matching frictions, we explore how changes in the distribution of households affect the transmission of government spending shocks. We show that the relative share of households in the left tail of the wealth distribution plays a key role in the aggregate marginal propensity to consume, the ...
Finance and Economics Discussion Series , Paper 2018-012

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
The Piketty Transition
Carroll, Daniel R.; Young, Eric R. (2014-12-03)
We study the effects on inequality of a "Piketty transition" to zero growth. In a model with a worker-capitalist dichotomy, we show first that the relationship between inequality (measured as a ratio of incomes for the two types) and growth is complicated; zero growth can raise or lower inequality, depending on parameters. Extending our model to include idiosyncratic wage risk we show that growth has quantitatively negligible effects on inequality, and the effect is negative. Finally, following Piketty?s thought experiment, we study how the transition might occur without declining returns; ...
Working Papers (Old Series) , Paper 1432

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
Liquidity, Capital Pledgeability and Inflation Redistribution
Finocchiaro, Daria; Diaz, Julian; Boel, Paola (2021-11-10)
We study the redistributive effects of expected inflation in a microfounded monetary model with heterogeneous discount factors and collateral constraints. In equilibrium, this heterogeneity leads to borrowing and lending. Model assumptions also guarantee a tractable distribution of money and capital holdings. Several results emerge from our analysis. First, in this framework expected inflation is detrimental to capital accumulation. Second, expected inflation affects borrowing and lending when collateral constraints are present, thus also inducing redistributive effects through credit. Third, ...
Working Papers , Paper 21-26

Working Paper
A Theory of Housing Demand Shocks
Zha, Tao; Wang, Pengfei; Liu, Zheng (2019-03-01)
Aggregate housing demand shocks are an important source of house price fluctuations in the standard macroeconomic models, and through the collateral channel, they drive macroeconomic fluctuations. These reduced-form shocks, however, fail to generate a highly volatile price-to-rent ratio that comoves with the house price observed in the data (the ?price-rent puzzle?). We build a tractable heterogeneous-agent model that provides a microeconomic foundation for housing demand shocks. The model predicts that a credit supply shock can generate large comovements between the house price and the ...
FRB Atlanta Working Paper , Paper 2019-4

Working Paper
The Inflation Target and the Equilibrium Real Rate
Cotton, Christopher D. (2020-02-01)
Many economists have proposed raising the inflation target to reduce the probability of hitting the zero lower bound (ZLB). It is both a common assumption and a feature of standard models that raising the inflation target does not impact the equilibrium real rate. I demonstrate that in the New Keynesian model, once heterogeneity is introduced, raising the inflation target causes the equilibrium real rate to fall. This implies that raising the inflation target will increase thenominal interest rate by less than expected and thus will be less effective in reducing the probability of hitting the ...
Working Papers , Paper 20-2

Working Paper
Inflation at the Household Level: Web Appendix
Schulhofer-Wohl, Sam; Kaplan, Greg (2016-04-11)
This appendix contains additional results on using scanner data to estimate inflation rates at the household level. There are three sections. Section 1 shows cross-sectional distributions of Fisher and Paasche inflation rates. Section 2 shows the evolution over time of measures of dispersion of Fisher and Paasche inflation rates. Section 3 shows cross-sectional distributions of two-year inflation rates measured with Fisher and Paasche indexes.
Working Papers , Paper 732

Discussion Paper
Understanding the Racial and Income Gap in COVID-19: Essential Workers
Chakrabarti, Rajashri; Pinkovskiy, Maxim L.; Avtar, Ruchi (2021-01-12)
This is the fourth and final post in this series aimed at understanding the gap in COVID-19 intensity by race and by income. The previous three posts focused on the role of mediating variables—such as uninsurance rates, comorbidities, and health resource in the first post; public transportation, and home crowding in the second; and social distancing, pollution, and age composition in the third—in explaining the racial and income gap in the incidence of COVID-19. In this post, we now investigate the role of employment in essential services in explaining this gap.
Liberty Street Economics , Paper 20210112d

Working Paper
Estimating Border Effects: The Impact of Spatial Aggregation
Novy, Dennis; Coughlin, Cletus C. (2016-04-01)
Trade data are typically reported at the level of regions or countries and are therefore aggregates across space. In this paper, we investigate the sensitivity of standard gravity estimation to spatial aggregation. We build a model in which symmetric micro regions are aggregated into macro regions. We then apply the model to the large literature on border effects in domestic and international trade. Our theory shows that aggregation leads to border effect heterogeneity. Larger regions or countries are systematically associated with smaller border effects. The reason is that due to spatial ...
Working Papers , Paper 2016-6

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