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Working Paper
The impact of medical and nursing home expenses and social insurance
We consider a life-cycle model with idiosyncratic risk in earnings, out-of-pocket medical and nursing home expenses, and survival. Partial insurance is available through welfare, Medicaid, and social security. Calibrating the model to the United States, we show that (1) savings for old-age, out-of-pocket expenses account for 13.5 percent of aggregate wealth, half of which is due to nursing home expenses; (2) cross-sectional out-of-pocket nursing home risk accounts for 3 percent of aggregate wealth and substantially slows down wealth decumulation at older ages; (3) the impact of medical and ...
Discussion Paper
Consumers Increasingly Expect Additional Government Support amid COVID-19 Pandemic
The New York Fed’s Center for Microeconomic Data released results today from its April 2020 SCE Public Policy Survey, which provides information on consumers' expectations regarding future changes to a wide range of fiscal and social insurance policies and the potential impact of these changes on their households. These data have been collected every four months since October 2015 as part of our Survey of Consumer Expectations (SCE). Given the ongoing COVID-19 pandemic, households face significant uncertainty about their personal situations and the general economic environment when forming ...
Working Paper
Proxy SVARs: Asymptotic Theory, Bootstrap Inference, and the Effects of Income Tax Changes in the United States
Proxy structural vector autoregressions (SVARs) identify structural shocks in vector autoregressions (VARs) with external proxy variables that are correlated with the structural shocks of interest but uncorrelated with other structural shocks. We provide asymptotic theory for proxy SVARs when the VAR innovations and proxy variables are jointly ?-mixing. We also prove the asymptotic validity of a residual-based moving block bootstrap (MBB) for inference on statistics that depend jointly on estimators for the VAR coefficients and for covariances of the VAR innovations and proxy variables. These ...
Working Paper
Policy Intervention in Debt Renegotiation: Evidence from the Home Affordable Modification Program
The main rationale for policy intervention in debt renegotiation is to enhance such activity when foreclosures are perceived to be inefficiently high. We examine the ability of the government to influence debt renegotiation by empirically evaluating the effects of the 2009 Home Affordable Modification Program (HAMP) that provided intermediaries (servicers) with sizeable financial incentives to renegotiate mortgages. A difference-in-difference strategy that exploits variation in program eligibility criteria reveals that the program generated an overall increase in the intensity of ...
Working Paper
The Political Economy of Underfunded Municipal Pension
This paper analyzes the determinants of underfunding of local government?s pension funds using a politico-economic overlapping generations model. We show that a binding down payment constraint in the housing market dampens capitalization of future taxes into current land prices. Thus, a local government?s pension funding policy matters for land prices and the utility of young households. Underfunding arises in equilibrium if the pension funding policy is set by the old generation. Young households instead favor a policy of full funding. Empirical results based on cross-city comparisons in the ...
Working Paper
The Earned Income Tax Credit and Food Consumption Patterns
The Earned Income Tax Credit is unique among social programs in that benefits are not paid out evenly across the calendar year. We exploit this feature of the EITC to investigate how the credit influences the food expenditure patterns of eligible households. We find that eligible households spend relatively more on healthy items including fresh fruit and vegetables, meat and poultry, and dairy products during the months when most refunds are paid.
Working Paper
Public Pension Reforms and Fiscal Foresight: Narrative Evidence and Aggregate Implications
We explore the evolution of pension policy across countries and investigate the macroeconomic effects of pension structural reforms in recent decades, in particular those with implementation delays. We first document chronological changes in pension policy for 10 OECD countries between 1962 and 2017. The new data set shows that pension systems rapidly expanded between the 1960s and 1980s, followed by a wave of retrenchments since the 1990s. Structural pension reforms, which are motivated by long-run fiscal sustainability concerns, often come with significant implementation delays. We find ...
Report
Finite horizons, political economy, and growth
This paper analyzes the political economy of growth when agents and the government have finite horizons and equilibrium growth is inefficient. A "representative" government (that is, one whose preferences reflect those of its constituents) endowed merely with the ability to tax and transfer can improve somewhat on the market allocation but cannot achieve first-best growth. Efficiency requires in addition the ability to bind future governments. We argue that this ability is related to political stability, and provide empirical evidence that stability and growth-related policies (namely ...
Working Paper
A Quantitative Evaluation of the Housing Provident Fund Program in China
The Housing Provident Fund (HPF) is the largest public housing program in China. It was created in 1999 to enhance homeownership. This program involves a mandatory saving scheme based on labor income. Past deposits are refunded when the worker purchases a house or retires. Moreover, the program provides mortgages at subsidized rates to facilitate these home purchases. I calibrate a heterogeneous-agent life-cycle model to quantify the effects of these policies. My analysis shows that a housing program with these features is expected to raise the rate of homeownership by 8.7 percentage points ...
Working Paper
Financial Intermediation and Aggregate Demand: A Sufficient Statistics Approach
We provide a unified framework to study how the financial sector affects the transmission of macroeconomic policies, such as monetary and fiscal policies, and asset purchase programs. Our framework nests models of financial intermediation with various microfoundations and allows for rich household heterogeneity. The financial sector supplies liquidity by issuing liquid assets to finance illiquid capital. The elasticities of liquidity supply with respect to returns are sufficient statistics that summarize how the financial sector determines responses to policy through asset markets. This asset ...