winners and losers in housing markets this paper is a quantitatively oriented theoretical study into the interaction between housing prices aggregate production and household behaviour over a lifetime we develop a life cycle model of a production economy in which land and capital are used to build residential and commercial structures we find that in an economy where the share of land in the value of structures is large housing prices react more to an exogenous change in expected productivity or the world interest rate causing large redistribution effects between net buyers and net sellers of houses changing the financing constraint however has limited effects on housing prices

a grouped data semiparametric competing risks model with nonparametric unobserved heterogeneity and mover stayer structure abstract this paper incorporates nonparametric unobserved heterogeneity and mover stayer structure into a grouped data semiparametric competing risks model with time varying covariance

capital income taxation with housing abstract this paper quantitatively investigates capital income taxation in the general equilibrium overlapping generations model with household heterogeneity and housing housing tax policy is found to affect how capital income should be taxed due to substitution between housing and non housing capital given the existing u s preferential tax treatment for owner occupied housing the optimal capital income tax rate is close to zero 1 contrary to the high optimal capital income tax rate found with overlapping generations models without housing 31 a low capital income tax rate improves welfare by narrowing a tax wedge between housing and non housing capital the narrowed tax wedge indirectly nullifies the subsidies taxes for homeowners renters and corrects over investment to housing naturally when the preferential tax treatment for owner occupied housing is eliminated a high capital income tax rate improves welfare as in the model without housing

banking in computable general equilibrium economies abstract in this paper we develop a computable general equilibrium economy that models the banking sector explicitly banks intermediate between households and between the household sector and the government sector households borrow from banks to finance their purchases of houses and they lend to banks to save for retirement banks pool households savings and they purchase interest bearing government debt and non interest bearing reserves we use this structure to answer two sets of questions one normative in nature that evaluates the welfare costs of alternative monetary and tax policies and one positive in nature that studies the real effects of following a procyclical interest rate policy rule

wealth distribution in life cycle economies abstract this paper compares the age wealth distribution produced in life cycle economies to the corresponding distribution in the us economy the idea is to calibrate the model economies to match features of the us earnings distribution and then examine the wealth distribution implications of the model economies the findings are that the calibrated model economies with earnings and lifetime uncertainty can replicate measures of both aggregate wealth and transfer wealth in the us furthermore the model economies produce the us wealth gini and a significant fraction of the wealth inequality within age groups however the model economies produce less than half the fraction of wealth held by the top 1 percent of us households

home equity in retirement retired homeowners dissave more slowly than renters which suggests that homeownership affects retirees saving decisions we investigate empirically and theoretically the life cycle patterns of homeownership housing and nonhousing assets in retirement using an estimated structural model of saving and housing decisions we find first that homeowners dissave slowly because they prefer to stay in their house as long as possible but cannot easily borrow against it second the 1996 2006 housing boom significantly increased homeowners assets these channels are quantitatively significant without considering homeownership retirees net worth would be 28 44 lower depending on age

the wealth distribution with durable goods in the united states the distribution of houses is less egalitarian than that of earnings for the total population but these two distributions are remarkably similar for homeowners additionally housing as a fraction of total wealth decreases with the level of wealth in order to understand the different factors that account for these wealth composition patterns we introduce illiquid houses and collateral credit in a general equilibrium model of heterogeneous agents with idiosyncratic uncertainty a combination of very persistent shocks to earnings frictions in the housing market and a rental market is necessary to obtain numbers in line with the evidence

overtime labor employment frictions and the new keynesian phillips curve abstract this paper presents a new keynesian nk model that is extended to differentiate between straight time and overtime work the model proposes that the new keynesian phillips curve nkpc should be estimated with marginal cost measured in terms of overtime labor the resulting coefficient estimates are in accordance with theory and statistically significant for the hybrid nkpc which allows for backward looking price setters but not for the purely forward looking nkpc in the hybrid model backward looking behavior is found to be predominant the paper also shows that the incorporation of employment frictions predetermined employment and convex adjustment costs in nk models helps reconcile the frequent price changes found in the microdata with the degree of sluggishness in inflation adjustment to output changes at the macro level

capital goods measured tfp and growth the case of spain the effect of investing in equipment and or structures on tfp and long run growth is investigated here we argue that economies can grow in spite of stagnant tfp if the investment rate is inefficiently high we study the case of spain where real gdp per worker grew at 2 74 percent annually and tfp was stagnant during 1996 2007 we show that low spanish tfp is due to low istc and an inefficiently high investment in residential structures we quantify the effect of the housing boom of the 2000s the total cost of subsidies to residential structures in terms of tfp and income growth

does labor s share drive inflation a number of researchers have recently argued that the new keynesian phillips curve matches the empirical behavior of inflation well when the labor income share is used as a driving variable but fits poorly when deterministically detrended output is used the theoretical motivation for these results rests on the idea that the output gap the deviation between actual and potential output is better captured by the labor income share in turn implying that central banks should raise interest rates in response to increases in this variable we show that the empirical evidence generally suggests that the labor share version of the new keynesian phillips curve is a very poor model of price inflation we conclude that there is little reason to view the labor income share as a good measure of the output gap or as an appropriate variable for incorporation in a monetary policy rule

unemployment insurance recall expectations and unemployment outcomes this paper empirically examines the importance of explicitly accounting for the layoff rehire process in the analysis of unemployment outcomes in the united states we find that the spells of individuals who initially expect to be recalled account for much more of the unemployment of unemployment insurance ui recipients than do spells actually ending in recall our results indicate that the recall and new job escape rates from unemployment have quite different time patterns and are often affected in opposite ways by explanatory variables we also find that the probability of leaving unemployment both through recalls and new job finding increases greatly around the time that ui benefits lapse over the past fifteen years many studies have empirically analyzed the determinants of individual unemployment spell durations in the united states much of this literature has used a job search framework in which the unemployed are viewed as permanently displaced workers who are unattached to jobs the possibility of recall to a former job a process not requiring search has been omitted from explicit consideration in the majority of these studies 2 an explicit treatment of the layoff rehire process is necessary for a proper understanding of the determinants of unemployment durations and of the impacts of unemployment policies in the united states for at least three reasons first temporary layoffs in which workers are often rehired by their original employers are a quantitatively quite important feature of the u s labor market 3 second expectations concerning the likelihood of recall are likely to affect the responses of employers and unemployed workers to labor market interventions such as reemployment bonuses and subsidies

the new keynesian phillips curve from sticky inflation to sticky prices the new keynesian phillips curve nkpc model of inflation dynamics based on forward looking expectations is of great theoretical significance in monetary policy analysis empirical studies however often find that backward looking inflation inertia dominates the dynamics of the short run aggregate supply curve this inconsistency is examined by investigating multiple structural changes in the nkpc for the u s between 1960 and 2005 employing both inflation expectations survey data and a rational expectations approximation we find that forward looking behavior plays a smaller role during the high and volatile inflation regime to 1981 than in the subsequent period of moderate inflation providing empirical support for sticky price models over the last two decades a break in the intercept of the nkpc is also identified around 2001 and this may be associated with u s monetary policy in that period

the method of endogenous gridpoints with occasionally binding constraints among endogenous variables we show how the method of endogenous gridpoints can be extended to solve models with occasionally binding constraints among endogenous variables very efficiently we present the method for a consumer problem with occasionally binding collateral constraints and non separable utility in durable and non durable consumption this problem allows for a joint analysis of durable and non durable consumption in models with uninsurable income risk which is important to understand patterns of consumption saving and collateralized debt we illustrate the algorithm and its efficiency by calibrating the model to us data

forecast comparisons in unstable environments we propose new methods for comparing the out of sample forecasting performance of two competing models in the presence of possible instabilities the main idea is to develop a measure of the relative local forecasting performance for the two models and to investigate its stability over time by means of statistical tests we propose two tests the fluctuation test and the one time reversal test that analyze the evolution of the models relative performance over historical samples in contrast to previous approaches to forecast comparison which are based on measures of global performance we focus on the entire time path of the models relative performance which may contain useful information that is lost when looking for the model that forecasts best on average we apply our tests to the analysis of the time variation in the out of sample forecasting performance of monetary models of exchange rate determination relative to the random walk copyright 2010 john wiley sons ltd

durables nondurables down payments and consumption excesses abstract we examine a model that generalizes the standard buffer stock model of saving to accommodate durables nondurables down payment requirements and adjustment costs in the durables market we find that nondurable consumption becomes more volatile relative to income as down payments decrease at the individual and at the aggregate level moreover for plausible parameter values the model can explain the excess smoothness and excess sensitivity observed in u s aggregate data the result follows from a gradual adjustment of consumption to permanent income shocks when agents attempt to spread out the burden of down payments over time compounded by slow adjustment due to transaction costs

behavioral heterogeneity in u s inflation dynamics in this article we develop and estimate a behavioral model of inflation dynamics with heterogeneous firms in our stylized framework there are two groups of price setters fundamentalists and rando

house prices and consumption inequality i characterize how house price shocks affect consumption inequality using a life cycle model of housing and nonhousing consumption with incomplete markets i derive analytical expressions for the dynamics of inequalities and use these to analyze large house prices swings seen in the uk i show that movements in consumption inequality were large that they correspond with the theoretical predictions qualitatively and that the model explains a large fraction of the movements quantitatively i demonstrate the accuracy of this analysis using an extended model s full non linear solution finally accounting for house price shocks alters estimates of labour income risks using cross sectional data

accounting for the u s earnings and wealth inequality we show that a theory of earnings and wealth inequality based on the optimal choices of ex ante identical households that face uninsured idiosyncratic shocks to their endowments of efficiency labor units accounts for the u s earnings and wealth inequality almost exactly

distributional implications of government guarantees in mortgage markets we analyze the removal of the credit risk guarantees provided by the government sponsored enterprises gses in a model with agents heterogeneous in income and house price risk we find that wealth inequality increases driven by higher mortgage spreads and housing rents housing holdings become more concentrated foreclosures fall the removal benefits high income households while hurting low and mid income households renters and highly leveraged mortgagors with conforming loans gse reform requires compensating transfers sufficiently high elasticity of rental supply or linking gse reform with the elimination of the mortgage interest deduction

a dynamic model of housing demand estimation and policy implications in the u s macroeconomic policy makers are concerned about how consumers will respond to falling incomes nominal home prices falling income rising mortgage interest rates and tightening credit standards in order to address these questions we estimate and simulate a dynamic structural model of housing demand in the model consumers maximize expected discounted lifetime utility from housing services and a composite consumption good the model allows for realistic features of the housing market including non convex adjustment costs from buying and selling a home and credit constraints from minimum downpayment requirements we use the forward simulation procedure of bajari benkard and levin 2007 to estimate the structural parameters especially the elasticity of substitution between consumption and housing services using data from the panel study of income dynamics given the estimated model parameters we simulate the partial equilibrium consumption and housing and

charts noise and fundamentals in the london foreign exchange market this paper presents some empirical evidence on the prevalence perceived importance and nature of chartist or technical analysis in the london foreign exchange market if noise traders see e g de long et al i987 are defined as those speculators who do not base their trading strategies on a consideration of market fundamentals then it clearly encompasses those traders who employ chart analysis i e those who base their strategies on the analysis and extrapolation of past price movements alone

firm specific capital inflation persistence and the sources of business cycles this paper estimates a firm specific capital dsge model firm specific capital improves the fit of dsge models to the data as shown by a large increase in the value of the log marginal likelihood this results from a lower implied estimate of the nkpc slope for a given degree of price stickiness firm specific capital leads to a better fit to the volatilities of macro variables and a greater persistence of inflation it is also shown that firm specific capital reduces the dependence of new keynesian models on price markup shocks and that it increases the persistence of output to monetary shocks

housing taxation and capital accumulation this paper studies the impact of the preferential tax treatment of housing capital in a dynamic general equilibrium life cycle economy populated by heterogeneous individuals the model includes the main housing tax provisions currently in place in the u s and a minimum downpayment requirement upon purchasing non divisible houses the tax code makes the return on housing capital larger than that on business capital which distorts the lifetime profile and composition of individuals savings the wedge between the two rates of return emanates from the failure to tax imputed rents and is amplified by the presence of mortgage interest deductibility simulations show that individuals at all income levels would rather live in a world where imputed rents are taxed or one where mortgage interest payments are not deductible furthermore distributional effects are much smaller than conventionally believed

consumption dynamics during recessions when will durable expenditures respond strongly to economic stimulus we build from micro evidence and show that in a heterogeneous agent business cycle model with xed costs of durable adjustment responsiveness is substantially dampened during recessions our model estimates imply that during the great recession durable expenditures were half as responsive to additional stimulus as during the boom in the 1990s this procyclical responsiveness is driven by changes in the distribution of households desired durable holdings over the cycle we directly test our model by estimating this distribution empirically using psid micro data and nd that the distribution in the data moves cyclically as predicted in addition to this micro evidence we also provide support for our model s procyclical responsiveness using aggregate time series data and we show this time series evidence is inconsistent with simpler models featuring smooth adjustment costs

a dynamic model of housing demand estimation and policy implications a dynamic model of housing demand using data from the panel study of income dynamics psid we specify estimate and simulate a dynamic structural model of housing demand our model generalizes previous applied econometric work by incorporating realistic features of the housing market including non convex adjustment costs from buying and selling a home credit constraints from minimum downpayment requirements and uncertainty about the evolution of incomes and home prices we argue that these features are critical for capturing salient features of housing demand observed in the psid after estimating the model we use it to simulate how consumer behavior responds to house price and income declines as well as tightening credit these experiments are motivated by the u s recession starting in december of 2007 that saw large falls in home prices large negative income shocks for many households and tightening credit standards in the short run relatively few households adjust their housing stock households respond instead by reducing non housing consumption and reducing wealth because they wish to avoid losing their home and the associated adjustment costs households that adjust in the short run are those hit with a series of bad shocks such as a negative income shock and a home price decline a larger proportion of households do adjust their consumption in the long run increasing their housing stock since housing is less expensive however such changes may occur several years after the shocks listed above

a new keynesian model with heterogeneous expectations abstract within a new keynesian model we incorporate bounded rationality at the individual agent level and we determine restrictions on expectations operators sufficient to imply aggregate is and as relations of the same functional form as those under rationality this result provides dual implications the strong nature of the restrictions required to achieve aggregation serve as a caution to researchers imposing heterogeneous expectations at an aggregate level may be ill advised on the other hand accepting the necessary restrictions provides for tractable analysis of expectations heterogeneity as an example we consider a case where a fraction of agents are rational and the remainder are adaptive and find specifications that are determinate under rationality may possess multiple equilibria in case of expectations heterogeneity

new keynesian economics and the phillips curve models with sticky prices are an important part of new keynesian economics the author shows that several of the new keynesian models imply a formulation that is similar to the expectations augmented phillips curve of milton friedman and edmund phelps he then presents new estimates of the new keynesian phillips curve the author uses two proxies for price expectations survey based measures and an econometric based measure originally developed by bennett mccallum 1976 overall the results are consistent with the model but the survey based results are more precise suggesting that the surveys may be better measures of actual expectations copyright 1995 by ohio state university press

income and wealth heterogeneity in the macroeconomy how do movements in the distribution of income and wealth affect the macroeconomy we analyze this question using a calibrated version of the stochastic growth model with partially uninsurable idiosyncratic risk and movements in aggregate productivity our main finding is that in the stationary stochastic equilibrium the behavior of the macroeconomic aggregates can be almost perfectly described using only the mean of the wealth distribution this result is robust to substantial changes in both parameter values and model specification our benchmark model whose only difference from the representative agent framework is the existence of uninsurable idiosyncratic risk displays far less cross sectional dispersion and skewness in wealth than u s data however an extension that relies on a small amount of heterogeneity in thrift does succeed in replicating the key features of the wealth data furthermore this extension features aggregate time series that depart significantly from permanent income behavior

house prices and consumer spending recent empirical work shows large consumption responses to house price movements this is at odds with a prominent theoretical view which using the logic of the permanent income hypothesis argues that consumption responses should be small we show that in contrast to this view workhorse models of consumption with incomplete markets calibrated to rich cross sectional micro facts actually predict large consumption responses in line with the data to explain this result we show that consumption responses to permanent house price shocks can be approximated by a simple and robust rule of thumb formula the marginal propensity to consume out of temporary income times the value of housing in our model consumption responses depend on a number of factors such as the level and distribution of debt the size and history of house price shocks and the level of credit supply each of these effects is naturally explained with our simple formula

unemployment insurance and unemployment spells this paper tests the effects of the level and length of unemployment insurance benefits on unemployment durations the paper particularly studies individual behavior during the weeks just prior to when benefits lapse higher unemployment insurance benefits are found to have a strong negative effect on the probability of leaving unemployment however the probability of leaving unemployment rises dramatically just prior to when benefits lapse individual data are used with accurate information of spell durations and the level and length of benefits the semiparametric estimation techniques used in the paper yield more plausible estimates than conventional approaches and provide useful diagnostics copyright 1990 by the econometric society

consumption and risk sharing over the life cycle a striking feature of u s data on income and consumption is that inequality increases with age this paper asks if individual specific earnings risk can provide a coherent explanation we find that it can we construct an overlapping generations general equilibrium model in which households face uninsurable earnings shocks over the course of their lifetimes earnings inequality is exogenous and is calibrated to match data from the u s panel study on income dynamics consumption inequality is endogenous and matches well data from the u s consumer expenditure survey the total risk households face is decomposed into that realized before entering the labor market and that realized throughout the working years in welfare terms the latter is found to be more important than the former

the retirement savings puzzle reviewed the role of housing and bequests the so called retirement savings puzzle is a phenomenon by which contrary to what the standard life cycle model predicts households do not run down their wealth significantly during retirement in this review paper we survey the literature on the retirement savings puzzle and we connect it with the literature on housing equity during retirement to establish a link between these two streams of literature we use as a framework the work of nakajima and telyukova 2013a home equity in retirement ucsd working paper and nakajima and telyukova 2017 reverse mortgage loans a quantitative analysis journal of finance 72 911 950 who find that home ownership interacts with factors that explain the retirement savings puzzle notably with the bequest motive we complement the results by nakajima and telyukova by relating them to the literature on altruistic bequests strategic bequests and housing as a commitment device all of which give further insights on the connection between home ownership and bequests we complement our review of the literature with descriptive evidence using the netherlands as a case study

the risk free rate in heterogeneous agent incomplete insurance economies abstract why has the average real risk free interest rate been less than one percent the question is motivated by the failure of a class of calibrated representative agent economies to explain the average return to equity and risk free debt i construct an economy where agents experience uninsurable idiosyncratic endowment shocks and smooth consumption by holding a risk free asset i calibrate the economy and characterize equilibria computationally with a borrowing constraint of one year s income the resulting risk free rate is more than one percent below the rate in the comparable representative agent economy

new tests of the new keynesian phillips curve abstract lagged dependent variables typically play an important role in empirical models of inflation do these lags reflect backward looking inflation expectations or do they proxy for rational forward looking expectations as in the new keynesian phillips curve gali and gertler 1999 inflation dynamics a structural econometric analysis journal of monetary economics 44 195 222 attempt to answer this question using gmm to estimate specifications incorporating both lagged and future inflation they report small coefficients on lagged inflation and conclude that the new keynesian model provides a good first approximation to inflation dynamics we show that these tests have low power against alternative backward looking specifications and demonstrate that their results are also consistent with a backward looking phillips curve using an alternative approach we find that the new keynesian pricing model cannot explain the importance of lagged inflation in standard inflation regressions and find that forward looking terms play a very limited role in explaining inflation dynamics

inflation dynamics and subjective expectations in the united states i introduction this paper analyzes the ability of sticky price models to explain the dynamics of u s inflation when using survey data as proxies for inflation expectations testing sticky price models with survey expectations is attractive since to the extent that survey data correctly capture agents expectations they allow to disregard issues related to the specification of agents expectations functions one neither has to impose untested orthogonality restrictions as required when estimating under the assumption of rational expectations nor has to make restrictive assumptions about the precise form of nonrationality present in agents forecast functions this allows to focus on the question whether the economic models under consideration are correctly specified previous tests of sticky price models performed under the assumption that agents hold rational expectations have generated mixed results prominently fuhrer and moore 1995 have reported that sticky price models do not generate sufficient stickiness for inflation when the output gap is used as a measure of real marginal costs recent evidence however has shown that the empirical performance depends crucially on how one measures real marginal costs the main determinant of inflation according to sticky price models for instance gall and gertler 1999 and sbordone 2002 show that sticky price models perform well once marginal costs are approximated by average unit labor costs 1 it makes an important difference whether sticky price models successfully explain inflation dynamics as a function of output behavior or they relate inflation dynamics to the behavior of unit labor costs given that the ultimate objective is a model explaining the joint behavior of output and inflation the latter case would require an additional empirically plausible theory linking the dynamics of unit labor costs to the behavior of output this paper studies whether the currently popular new keynesian phillips curve nkpc which can be derived from calvo 1983 style sticky price models is able to explain a relationship between inflation on the one hand and output or unit labor costs on the other hand thus we let the data speak whether a theory linking output to costs is warranted once expectations are approximated by data reported in the survey of professional forecasters our main finding is that the nkpc performs equally well with both measures of marginal costs output and unit labor costs whatever measure is used the estimate of the quarterly discount factor is close to one and the point estimate of the degree of price stickiness implies that firms reset their prices roughly every five quarters on average these results suggest that potential nonrationalities in expectations as they show up in surveys have biased previous estimates using output as a measure for marginal costs quite surprisingly the same nonrationalities do not seem to play a role when using unit labor costs here our estimates confirm the results obtained by gall and gertler 1999 and sbordone 2002 who assumed rational expectations we show that the reason for this finding is that approximating the agents information set using the unit labor cost variable rests on more solid grounds than approximating it using the output variable in particular the survey data suggest that the hypothesis of rational expectations implies a too high correlation between lagged output and future inflation expectations we show that this causes the coefficient estimate for output to become negative contrary to what is implied by theory these results suggest that once one takes account of potentially nonrational expectations via survey expectations sticky price models are able to establish a close link between output dynamics and the behavior of inflation to assess the robustness of this finding we include into the price equation lags of various variables and test for their significance

house prices and risk sharing homeowners in the panel study of income dynamics are able to maintain a high level of consumption following job loss or disability in periods of rising local house prices while the consumption drop for homeowners who lose their job in times of lower house prices is substantial these results are consistent with homeowners being able to access wealth gains when housing appreciates as witnessed by their ability to smooth consumption more than renters a calibrated model of endogenous homeownership and consumption is able to reproduce the patterns in the data quite well and provides an interpretation of the empirical results

expectational diversity in monetary economies abstract we investigate an overlapping generations monetary economy in which expectations depend upon backward looking predictors of the future price level we use discrete choice theory to model how agents select a predictor based on its past forecast error letting the number of available predictors tend to infinity we obtain the large type limit of the system taking the large type limit dramatically reduces the number of free parameters while maintaining the expectational diversity which we argue is necessary for constructing plausible learning based models the model s dynamics are strongly influenced by the intensity of choice which measures how sensitive an agent s predictor choice is to differences in forecast errors across predictors when the intensity of choice is low the monetary steady state is stable as the intensity of choice increases and if certain parametric restrictions are met the system undergoes a hopf bifurcation in which case we document the existence of highly irregular equilibrium price paths