Search Results
Working Paper
Old, Frail, and Uninsured: Accounting for Puzzles in the U.S. Long-Term Care Insurance Market
Half of U.S. 50-year-olds will experience a nursing home stay before they die, and one in ten will incur out-of-pocket long-term care expenses in excess of $200,000. Surprisingly, only about 10% of individuals over age 62 have private long-term care insurance (LTCI). This paper proposes a quantitative equilibrium optimal contracting model of the LTCI market that features screening along the extensive margin. Frail and/or poor risk groups are ordered a single contract of no insurance that we refer to as a rejection. According to our model, rejections are the main reason that LTCI take-up rates ...
Working Paper
Making the case for a low intertemporal elasticity of substitution
We provide two ways to reconcile small values of the intertemporal elasticity of substitution (IES) that range between 0.35 and 0.5 with empirical evidence that the IES is large. We do this reconciliation using a model in which all agents have identical preferences and the same access to asset markets. We also conduct an encompassing test, which indicates that specifications of the model with small values of the IES are more plausible than specifications with a large IES.
Working Paper
Making the case for a low intertemporal elasticity of substitution
We provide two ways to reconcile small values of the intertemporal elasticity of substitution (IES) that range between 0.35 and 0.5 with empirical evidence that the IES is large. We do this reconciliation using a model in which all agents have identical preferences and the same access to asset markets. We also conduct an encompassing test, which indicates that specifications of the model with small values of the IES are more plausible than specifications with a large IES.
Journal Article
Aging, Deflation, and Secular Stagnation
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 ...
Working Paper
Saving and interest rates in Japan: why they have fallen and why they will remain low
This paper quantifies the role of alternative shocks in accounting for the recent declines in Japanese saving rates and interest rates and provides some projections about their future course. We consider three distinct sources of variation in saving rates and real interest rates: changes in fertility rates, changes in survival rates, and changes in technology. The empirical relevance of these factors is explored using a computable dynamic OLG model. We find that the combined effects of demographics and slower total factor productivity growth successfully explain both the levels and the ...
Working Paper
New Keynesian dynamics in a low interest rate environment
Recent research has found that the dynamic properties of the New Keynesian model can be very different when the nominal interest rate is zero. Improvements in technology and reductions in the labor tax rate lower economic activity, and the size of the government purchase output multiplier can be well above one. This paper provides evidence that the focus on specifications of the New Keynesian model that produce unorthodox results in a liquidity trap may be misplaced. We show that a prototypical New Keynesian model fit to Japanese data exhibits orthodox dynamics during Japan's episode with ...
Working Paper
Some unpleasant properties of loglinearized solutions when the nominal rate is zero
Does fiscal policy have large and qualitatively different effects on the economy when the nominal interest rate is zero? An emerging consensus in the New Keynesian (NK) literature is that the answer to this question is yes. Evidence presented here suggests that the NK model's implications for fiscal policy at the zero bound may not be all that different from its implications for policy away from it. For a range of empirically relevant parameterizations, employment increases when the labor tax rate is cut and the government purchase multiplier is less than 1.05.
Working Paper
Monetary Policy over the Life Cycle
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 ...
Report
Seasonality and equilibrium business cycle theories
We consider a dynamic, stochastic equilibrium business cycle model which is augmented to reflect seasonal shifts in preferences, technology, and government purchases. Our estimated parameterization implies implausibly large seasonal variation in the state of technology: rising at an annual rate of 24% in the fourth quarter and falling at an annual rate of 28% in the first quarter. Furthermore, our findings indicate that variation in the state of technology of this magnitude is required if the model is to explain the main features of the seasonal cycle.
Report
Transaction services, inflation, and welfare
This paper is motivated by empirical observations on the comovements of currency velocity, inflation, and the relative size of the credit services sector. We document these comovements and incorporate into a monetary growth model a credit services sector that provides services that help people economize on money. Our model makes two new contributions. First, we show that direct evidence on the appropriately defined credit service sector for the United States is consistent with the welfare cost measured using an estimated money demand schedule. Second, we provide welfare cost of inflation ...