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Business cycle fluctuations and the distribution of consumption
De Giorgi, Giacomo; Gambetti, Luca (2015-03-01)
This paper sheds new light on the interactions between business cycles and the consumption distribution. We use Consumer Expenditure Survey data and a factor model to characterize the cyclical dynamics of the consumption distribution. We first establish that our approach is able to closely match business cycle fluctuations of consumption from the National Account. We then study the responses of the consumption distribution to total factor productivity shocks and economic policy uncertainty shocks. Importantly, we find that the responses of the right tail of the consumption distribution, ...
Staff Reports , Paper 716

Report
Asset Pricing with Cohort-Based Trading in MBS Markets
Song, Zhaogang; Fusari, Nicola; Liu, Haoyang; Li, Wei (2020-07-01)
Agency MBSs with diverse characteristics are traded in parallel through individualized specified pool (SP) contracts and standardized to-be-announced (TBA) contracts. This parallel trading environment generates distinctive effects on MBS pricing and trading: (1) Although cheapest-to-deliver (CTD) issues are present in TBA trading and absent from SP trading by design, MBS heterogeneity associated with CTD discounts affects SP returns positively, with the effect stronger for lower-value SPs; (2) High selling pressure amplifies the effects of MBS heterogeneity on SP returns; (3) Greater MBS ...
Staff Reports , Paper 931

Working Paper
Financial contracting with enforcement externalities
Drozd, Lukasz A.; Serrano-Padial, Ricardo (2016-01-20)
Contract enforceability in financial markets often depends on the aggregate actions of agents. For example, high default rates in credit markets can delay legal enforcement or reduce the value of collateral, incentivizing even more defaults and potentially affecting credit supply. We develop a theory of credit provision in which enforceability of individual contracts is linked to aggregate behavior. The central element behind this link is enforcement capacity, which is endogenously determined by investments in enforcement infrastructure. Our paper sheds new light on the emergence of credit ...
Working Papers , Paper 16-1

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

Working Paper
Inflation at the Household Level
Schulhofer-Wohl, Sam; Kaplan, Greg (2016-04-11)
We use scanner data to estimate inflation rates at the household level. Households' inflation rates are remarkably heterogeneous, with an interquartile range of 6.2 to 9.0 percentage points on an annual basis. Most of the heterogeneity comes not from variation in broadly defined consumption bundles but from variation in prices paid for the same types of goods - a source of variation that previous research has not measured. The entire distribution of household inflation rates shifts in parallel with aggregate inflation. Deviations from aggregate inflation exhibit only slightly negative serial ...
Working Papers , Paper 731

Working Paper
Sample Selection Models Without Exclusion Restrictions: Parameter Heterogeneity and Partial Identification
Honore, Bo E.; Hu, Luojia (2021-07)
This paper studies semiparametric versions of the classical sample selection model (Heckman (1976, 1979)) without exclusion restrictions. We extend the analysis in Honoré and Hu (2020) by allowing for parameter heterogeneity and derive implications of this model. We also consider models that allow for heteroskedasticity and briefly discuss other extensions. The key ideas are illustrated in a simple wage regression for females. We find that the derived implications of a semiparametric version of Heckman's classical sample selection model are consistent with the data for women with no college ...
Working Paper Series , Paper WP 2022-33

Working Paper
Financial Contracting with Enforcement Externalities
Drozd, Lukasz A.; Serrano-Padial, Ricardo (2018-10-18)
We study the negative feedback loop between the aggregate default rate and the efficacy of enforcement in a model of debt-financed entrepreneurial activity. The novel feature of our model is that enforcement capacity is accumulated ex ante and thus subject to depletion ex post. We characterize the effect of shocks that deplete enforcement resources on the aggregate default rate and credit supply. In the model default decisions by entrepreneurs are strategic complements, leading to multiple equilibria. We propose a global game selection to overcome equilibrium indeterminacy and show how shocks ...
Working Papers , Paper 18-21

Speech
Opening Remarks: Heterogeneity Blog Series Webinar
Hirtle, Beverly (2020-03-04)
Remarks for the Heterogeneity Blog Series Webinar, Federal Reserve Bank of New York, New York City.
Speech

Briefing
Why Do Long-Term Unemployed Workers Struggle to Find New Jobs?
Borovickova, Katrina (2023-04)
The job finding probabilities of workers who just lost their jobs are higher than for those who have been unemployed for several months. There are two broad reasons why this is the case: Either the job finding probabilities of workers decrease with unemployment duration, or workers differ in how quickly they can find jobs. Using an economic model and Austrian social security data on unemployment duration of workers, we estimate the importance of these two channels. We find that the latter is more important, especially in explaining a sharp decline in the job finding probability during the ...
Richmond Fed Economic Brief , Volume 23 , Issue 10

Working Paper
The Transmission of Financial Shocks and Leverage of Financial Institutions: An Endogenous Regime-Switching Framework
Waggoner, Daniel F.; Hubrich, Kirstin (2022-06-02)
We conduct a novel empirical analysis of the role of leverage of financial institutions for the transmission of financial shocks to the macroeconomy. For that purpose, we develop an endogenous regime-switching structural vector autoregressive model with time-varying transition probabilities that depend on the state of the economy. We propose new identification techniques for regime switching models.Recently developed theoretical models emphasize the role of bank balance sheets for the build-up of financial instabilities and the amplification of financial shocks. We build a market-based ...
FRB Atlanta Working Paper , Paper 2022-5

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