Search Results
Showing results 1 to 10 of approximately 10.
(refine search)
Working Paper
Why Do Couples and Singles Save During Retirement?
While the savings of retired singles tend to fall with age, those of retired couples tend to rise. We estimate a rich model of retired singles and couples with bequest motives and uncertain longevity and medical expenses. Our estimates imply that while medical expenses are an important driver of the savings of middle-income singles, bequest motives matter for couples and high-income singles, and generate transfers to non-spousal heirs whenever a household member dies. The interaction of medical expenses and bequest motives is a crucial determinant of savings for all retirees. Hence, to ...
Working Paper
Interactions between job search and housing decisions: a structural estimation
In this paper, we investigate to what extent shocks in housing and financial markets account for wage and employment variations in a frictional labor market. To explain these interactions, we use a model of job search with accumulation of wealth as liquid funds and residential real estate, in which house prices are randomly persistent. First, we show that reservation wages and unemployment are increasing in total wealth. And, second, we show that reservation wages and unemployment are also responsive to the composition of wealth. Specifically, when house prices are expected to rise, holding a ...
Working Paper
Financial Profiles of Workers Most Vulnerable to Coronavirus-Related Earnings Loss in the Spring of 2020
In spring 2020, the COVID-19 pandemic and related shutdowns had huge effects on unemployment. Using data from the Survey of Consumer Finances, we describe the financial profiles of US families whose workers were most vulnerable to coronavirus-related earnings losses in the spring of 2020, based on whether a particular worker was deemed "essential" and whether a worker's job could be conducted remotely. We use descriptive analytic techniques to examine how families' baseline financial situations would allow them to weather COVID-shutdown-related earnings losses. We find that families with ...
Working Paper
The Smart Money is in Cash? Financial Literacy and Liquid Savings Among U.S. Families
Most financial advisors recommend storing three to six months of expenses in liquid assets in case of an emergency. Yet we estimate that more than half of U.S. families do not have at least three months of their non-discretionary expenses in liquid savings. We find that financial literacy is strongly predictive of having three months of liquid savings, controlling for income, income variability, and even parental resources. We also find that financial literacy predicts liquid savings across the income distribution. These results indicate that accumulation of an emergency fund is not ...
Working Paper
Robust permanent income in general equilibrium
This paper provides a tractable continuous-time constant-absolute-risk averse (CARA)-Gaussian framework to quantitatively explore how the preference for robustness (RB) affects the interest rate, the dynamics of consumption and income, and the welfare costs of model uncertainty in general equilibrium. We show that RB significantly reduces the equilibrium interest rate, and reduces the relative volatility of consumption growth to income growth when the income process is stationary. Furthermore, we find that the welfare costs of model uncertainty are nontrivial for plausibly estimated income ...
Discussion Paper
Piggy Banks
What do banks do? Ask an economist and you’ll get a variety of answers. Banks play a vital role in allocating capital by linking savers and borrowers; they produce information by screening and monitoring borrowers; they create liquidity; they share and distribute risk; they engage in maturity transformation by borrowing short and lending long. What you won’t usually hear is that banks may help people stick to an optimal savings plan that they might not be able to stick to if they invested their money themselves. In other words, banks may serve as piggy banks by preventing people from ...
Working Paper
Wealth in the Utility Function and Consumption Inequality
Wealth in the utility function (WIU) has been increasingly used in macroeconomic modelsand this specification can be justified by a few theories such as Max Weber’s (1904-05, German; 1958) theory on “spirit of capitalism.” We incorporate the WIU into a general equilibriumconsumption-portfolio choice model to study the implications of the WIU for consumption inequality, equilibrium interest rate, and equity premium—an unexplored area in the literature.Our general equilibrium framework features recursive exponential utility, uninsurable labor risks,and multiple assets and can deliver ...
Working Paper
Optimal Paternalistic Savings Policies
We study optimal savings policies when there is a dual concern about undersaving for retirement and income inequality. Agents differ in present bias and earnings ability, both unobservable to a planner with paternalistic and redistributive motives. We characterize the solution to this two-dimensional screening problem and provide a decentralization using realistic policy instruments: mandatory savings at low incomes but a choice between subsidized savings vehicles at high incomes?resembling Social Security, 401(k), and IRA accounts in the US. Offering more savings choice at higher incomes ...
Briefing
Why Do Couples and Singles Save During Retirement?
While the savings of retired singles tend to fall with age, those of retired couples tend to rise. We estimate a rich model of retired singles and couples with bequest motives and uncertain longevity and medical expenses. Our estimates imply that while medical expenses are an important driver of the savings of middle-income singles, bequest motives matter for couples and high-income singles and generate transfers to nonspousal heirs whenever a household member dies. The interaction of medical expenses and bequest motives is a crucial determinant of savings for all retirees. Hence, to ...
Journal Article
Why Are Americans Saving So Much of Their Income?
For much of 2020, Americans have saved a greater share of their income than ever before. This increase in savings appears to be predominantly driven by precautionary motives. Therefore, consumers may be reluctant to draw down these savings in the future to support spending.