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Working Paper
Why Are the Wealthiest So Wealthy? New Longitudinal Empirical Evidence and Implications for Theories of Wealth Inequality
Ozkan, Serdar; Hubmer, Joachim; Salgado, Sergio; Halvorsen, Elin (2024-06-08)
CORRECT ORDER OF AUTHORS: Hubmer, Halvorsen, Salgado, Ozkan. We use 1993--2015 Norwegian administrative panel data on wealth and income to study lifecycle wealth dynamics. By employing a novel budget constraint approach, we show that at age 50 the excess wealth of the top 0.1%, relative to mid-wealth households, is accounted for by higher saving rates (38%), inheritances (34%), returns (23%), and labor income (5%). One-fourth of the wealthiest---the "New Money"---start with negative wealth but experience rapid wealth growth early in life. Relative to the "Old Money," the New Money are ...
Working Papers , Paper 2024-013

Journal Article
Aging, Deflation, and Secular Stagnation
Braun, R. Anton (2022-10-06)
Prior to the COVID pandemic, industrialized countries experienced a sustained episode of low inflation, low real interest rates, and low per capita gross domestic product (GDP) growth. As the logistical and other disruptions created by the COVID pandemic fade, will industrialized economies once again face downward pressure on prices, real interest rates, and output growth? We present evidence that the aging of the population was depressing the inflation rate, as well as real interest rates and GDP growth, prior to the COVID pandemic. Aging is ongoing in industrialized countries, and it will ...
Policy Hub , Volume 2022 , Issue 13

Working Paper
Credit card utilization and consumption over the life cycle and business cycle
Schuh, Scott; Fulford, Scott L. (2017-09-01)
The revolving credit available to consumers changes substantially over the business cycle, life cycle, and for individuals. We show that debt changes at the same time as credit, so credit utilization is remarkably stable. From ages 20?40, for example, credit card limits grow by more than 700 percent, and yet utilization holds steadily at around 50 percent. We estimate a structural model of life-cycle consumption and credit use in which credit cards can be used for payments, precautionary smoothing, and life-cycle smoothing, uniting their monetary and revolving credit functions. Our estimates ...
Working Papers , Paper 17-14

Working Paper
Finite-State Markov-Chain Approximations: A Hidden Markov Approach
Janssens, Eva F.; McCrary, Sean (2023-05-19)
This paper proposes a novel finite-state Markov chain approximation method for Markov processes with continuous support, providing both an optimal grid and transition probability matrix. The method can be used for multivariate processes, as well as non-stationary processes such as those with a life-cycle component. The method is based on minimizing the information loss between a Hidden Markov Model and the true data-generating process. We provide sufficient conditions under which this information loss can be made arbitrarily small if enough grid points are used. We compare our method to ...
Finance and Economics Discussion Series , Paper 2023-040

Working Paper
Hours Worked and Lifetime Earnings Inequality
Bick, Alexander; Rogerson, Richard; Blandin, Adam (2024-09-16)
We document large differences in lifetime hours of work using data from the NLSY79 and argue that these differences are an important source of inequality in lifetime earnings. To establish this we develop and calibrate a rich heterogeneous agent model of labor supply and human capital accumulation that allows for heterogeneity in preferences for work, initial human capital and learning ability, as well as idiosyncratic shocks to human capital throughout the life-cycle. Our calibrated model implies that almost 20 percent of the variance in lifetime earnings is accounted for by differences in ...
Working Papers , Paper 2024-024

Working Paper
The Mortgage Cash Flow Channel of Monetary Policy Transmission: A Tale of Two Countries
Cooper, Daniel H.; Garga, Vaishali; Luengo-Prado, Maria Jose (2021-08-01)
We study the mortgage cash flow channel of monetary policy transmission under fixed-rate mortgage (FRM) versus adjustable-rate mortgage (ARM) regimes by comparing the United States with primarily long-term FRMs and Spain with primarily ARMs that automatically reset annually. We find a robust transmission of mortgage rate changes to spending in both countries but surprisingly a larger effect in the United States—and provide two explanations for this finding. First, there are channels of transmission other than the mortgage cash flow effect since other interest rates co-move with the mortgage ...
Working Papers , Paper 21-8

Working Paper
Monetary Policy over the Life Cycle
Braun, R. Anton; Ikeda, Daisuke (2021-08-20)
A tighter monetary policy is generally associated with higher real interest rates on depositsand loans, weaker performance of equities and real estate, and slower growth in employment andwages. How does a household’s exposure to monetary policy vary with its age? The size andcomposition of both household income and asset portfolios exhibit large variation over the lifecycle inJapanese data. We formulate an overlapping generations model that reproduces these observationsand use it to analyze how household responses to monetary policy shocks vary over the lifecycle. Boththe signs and the ...
FRB Atlanta Working Paper , Paper 2021-20a

Working Paper
Scarred Consumption
Malmendier, Ulrike; Shen, Leslie Sheng (2019-10-09)
We show that prior lifetime experiences can "scar" consumers. Consumers who have lived through times of high unemployment exhibit persistent pessimism about their future financial situation and spend significantly less, controlling for the standard life-cycle consumption factors, even though their actual future income is uncorrelated with past experiences. Due to their experience-induced frugality, scarred consumers build up more wealth. We use a stochastic lifecycle model to show that the negative relationship between past experiences and consumption cannot be generated by financial ...
International Finance Discussion Papers , Paper 1259

Report
The Life-Cycle Dynamics of Wealth Mobility
Ocampo, Sergio; Audoly, Richard; Paz-Pardo, Gonzalo; McGee, Rory (2024-04-01)
We use 25 years of tax records for the Norwegian population to study the mobility of wealth over people’s lifetimes. We find considerable wealth mobility over the life cycle—exceeding income mobility. To understand the underlying mobility patterns, we group individuals with similar wealth histories using agglomerative hierarchical clustering, a tool from statistical learning. The mobility patterns we elicit provide evidence of segmented mobility. Over 60 percent of the population remains at the top or bottom of the wealth distribution throughout their lives. Mobility is driven by the ...
Staff Reports , Paper 1097

Working Paper
Life-Cycle Portfolio Choices and Heterogeneous Stock Market Expectations
Velásquez-Giraldo, Mateo (2024-12-20)
Survey measurements of households’ expectations about U.S. equity returns show substantial heterogeneity and large departures from the historical distribution of actual returns. The average household perceives a lower probability of positive returns and a greater probability of extreme returns than history has exhibited. I build a life-cycle model of saving and portfolio choices that incorporates beliefs estimated to match these survey measurements of expectations. This modification enables the model to greatly reduce a tension in the literature in which models that have aimed to match ...
Finance and Economics Discussion Series , Paper 2024-097

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