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Working Paper
Engineering a paradox of thrift recession
We build a variation of the neoclassical growth model in which financial shocks to households or wealth shocks (in the sense of wealth destruction) generate recessions. Two standard ingredients that are necessary are (1) the existence of adjustment costs that make the expansion of the tradable goods sector difficult and (2) the existence of some frictions in the labor market that prevent enormous reductions in real wages (Nash bargaining in Mortensen-Pissarides labor markets is enough). We pose a new ingredient that greatly magnifies the recession: a reduction in consumption expenditures ...
Working Paper
Organizational Equilibrium with Capital
This paper proposes a new equilibrium concept - organizational equilibrium - for models with state variables that have a time inconsistency problem. The key elements of this equilibrium concept are: (1) agents are allowed to ignore the history and restart the equilibrium; (2) agents can wait for future agents to start the equilibrium. We apply this equilibrium concept to a quasi-geometric discounting growth model and to a problem of optimal dynamic fiscal policy. We find that the allocation gradually transits from that implied by its Markov perfect equilibrium towards that implied by the ...
Working Paper
Health versus Wealth: On the Distributional Effects of Controlling a Pandemic
To slow the spread of COVID-19, many countries are shutting down nonessential sectors of the economy. Older individuals have the most to gain from slowing virus diffusion. Younger workers in sectors that are shuttered have the most to lose. In this paper, we build a model in which economic activity and disease progression are jointly determined. Individuals differ by age (young and retired), by sector (basic and luxury), and by health status. Disease transmission occurs in the workplace, in consumption activities, at home, and in hospitals. We study the optimal economic mitigation policy of a ...
Working Paper
Optimal Age-Based Vaccination and Economic Mitigation Policies for the Second Phase of the COVID-19 Pandemic
In this paper we ask how to best allocate a given time-varying supply of vaccines during the second phase of the Covid-19 pandemic across individuals of different ages. Building on the heterogeneous household model of optimal economic mitigation and redistribution developed by Glover et al. (2021), we contrast the actual vaccine deployment path that prioritized older individuals with one that first vaccinates younger workers. Vaccinating older adults first saves more lives but slows the economic recovery relative to inoculating younger adults first. Vaccines carry large welfare benefits in ...
Discussion Paper
Realistic neoclassical multiplier
Standard neoclassical models are unable to generate large values for the fiscal multiplier, the aggregate economic response to increased government spending. Empirical estimates place the multiplier between 0.7 and 1.0. Standard models deliver figures close to zero. In an earlier policy paper, we modified the standard model, with features of demand-based productivity. These modifications raised the figure to just 0.17, still very far from the range found in the empirical literature.
Discussion Paper
Models of government expenditure multipliers
In this note, we demonstrate and analyze the inability of standard neoclassical models to generate accurate estimates of the fiscal multiplier (that is, the macroeconomic response to increased government spending). We then examine whether estimates can be improved by incorporating recently developed theory on demand-induced productivity increases into neoclassical models. We find that neoclassical models modified in this fashion produce considerably better estimates, but they remain unable to generate anything close to an accurate value of the fiscal multiplier.
Discussion Paper
The Great Recession and Financial Shocks
A case can be made for the Great Recession being the result of a large financial shock that makes household borrowing difficult. The channel involves large reductions in house prices, which trigger sharp reductions in consumption. {{p}} We discuss the ingredients necessary for a quantitative macroeconomic model to successfully implement such a theory. They include: wealth heterogeneity, where the majority of the population needs to acquire financing to purchase houses despite the large amount of wealth in the economy; sizable real frictions that hinder the transformation of consumption into ...
Journal Article
2013 Update on the U.S. Earnings, Income, and Wealth Distributional Facts: A View from Macroeconomics
This article is largely a description of the earnings, income, and wealth distributions in the United States in 2013 as measured by the Survey of Consumer Finances (SCF). We describe facts that lie at the joint distribution of the three variables. We look at inequality in relation to age, education, employer status, and marital status. We discuss the evolution of our results over the past 25 years (1989 - 2013), emphasizing the role played by the Great Recession. We pay special attention to the degree of income and wealth concentration at the top and discuss what the use of the SCF data can ...