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Journal Article
The redistributive consequences of monetary policy
Monetary policy is not intended to benefit one segment of the population at the expense of another by redistributing income and wealth. But as Makoto Nakajima explains, it is probably impossible to avoid such redistributive consequences.
Working Paper
A tale of two commitments: equilibrium default and temptation
I construct the life-cycle model with equilibrium default and preferences featuring temptation and self-control. The model provides quantitatively similar answers to positive questions such as the causes of the observed rise in debt and bankruptcies and macroeconomic implications of the 2005 bankruptcy reform, as the standard model without temptation. However, the temptation model provides contrasting welfare implications, because of overborrowing when the borrowing constraint is relaxed. Specifically, the 2005 bankruptcy reform has an overall negative welfare effect, according to the ...
Working Paper
Assessing bankruptcy reform in a model with temptation and equilibrium default
A life-cycle model with equilibrium default in which consumers with and without temptation coexist is constructed to evaluate the 2005 bankruptcy law reform and other counterfactual reforms. The calibrated model indicates that the 2005 bankruptcy reform achieves its goal of reducing the number of bankruptcy filings, as seen in the data, but at the cost of loss in social welfare. The creditor-friendly reform provides borrowers with a stronger commitment to repay and thus yields lower default premia and better consumption smoothing. However, those who borrow and default due to temptation or ...
Working Paper
Health-care reform or labor market reform? a quantitative analysis of the Affordable Care Act
An equilibrium model with ?rm and worker heterogeneity is constructed to analyze labor market and welfare implications of the Patient Protection and Affordable Care Act (ACA). Our model implies a signi?cant reduction in the uninsured rate from 22.6 percent to 5.6 percent. {{p}} The model predicts a moderate positive welfare gain from the ACA, due to redistribution of income through Health Insurance Subsidies at the Exchange as well as Medicaid expansion. About 2.1 million more part-time jobs are created under the ACA, in expense of 1.6 million full-time jobs, mainly because the link between ...
Working Paper
Reverse mortgage loans: a quantitative analysis
Reverse mortgage loans (RMLs) allow older homeowners to borrow against housing wealth without moving. In spite of growth in this market, only 2.1% of eligible homeowners had RMLs in 2011. In this paper, we analyze reverse mortgages in a life-cycle model of retirement, calibrated to age-asset profiles. The ex-ante welfare gain from RMLs is sizable at $1,000 per household; ex-post, low-income, low-wealth and poor-health households use them. Bequest motives, nursing-home moving risk, house price risk, and interest and insurance costs all contribute to the low take-up rate. The model predicts ...
Working Paper
Rising indebtedness and hyperbolic discounting: a welfare analysis
Is the observed rapid increase in consumer debt over the last three decades good news for consumers? This paper quantitatively studies macroeconomic and welfare implications of relaxing borrowing constraints when consumers exhibit a hyperbolic discounting preference. In particular, the author constructs a calibrated general equilibrium life-cycle model with uninsured idiosyncratic earnings shocks and a quasi-hyperbolic discounting preference and examines the effect of relaxation of the borrowing constraint which generates increased indebtedness. The model can capture the two contrasting views ...
Working Paper
Capital Income Taxation with Housing
This paper quantitatively investigates capital income taxation in the general-equilibrium overlap-ping 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. A low capital income tax rate improves welfare by ...
Working Paper
Rising indebtedness and temptation: a welfare analysis
Is the observed large increase in consumer indebtedness since 1970 beneficial for U.S. consumers? This paper quantitatively investigates the macroeconomic and welfare implications of relaxing borrowing constraints using a model with preferences featuring temptation and self-control. The model can capture two contrasting views: the positive view, which links increased indebtedness to financial innovation and thus better consumption smoothing, and the negative view, which is associated with consumers' over-borrowing. The author finds that the latter is sizable: the calibrated model implies a ...
Journal Article
Understanding house-price dynamics
For most homeowners, housing is the single most important component of their nonpension wealth. Therefore, a change in house prices greatly affects the total wealth of many households. Furthermore, movements in house prices can affect people?s lives indirectly. For example, the surge in the number of mortgage defaults and foreclosures during the recent recession was triggered in part by a drop in house prices, and this surge damaged the health of the financial institutions that either directly or indirectly owned mortgage loans. In turn, the deteriorating health of the financial sector was ...
Working Paper
Doves for the Rich, Hawks for the Poor? Distributional Consequences of Monetary Policy
We build a New Keynesian business-cycle model with rich household heterogeneity. A central feature is that matching frictions render labor-market risk countercyclical and endogenous to monetary policy. Our main result is that a majority of households prefer substantial stabilization of unemployment even if this means deviations from price stability. A monetary policy focused on unemployment stabilization helps Main Street" by providing consumption insurance. It hurts Wall Street" by reducing precautionary saving and, thus, asset prices. On the aggregate level, household heterogeneity ...