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Working Paper
Mortgage Borrowing and the Boom-Bust Cycle in Consumption and Residential Investment
This paper studies the transmission of the major shocks in the U.S. housing market in the 2000s to consumption and residential investment. Using geographically disaggregated data, I show that residential investment is more responsive to these shocks than consumption, as measured by elasticities and the implied contributions to GDP growth. I develop a structural life-cycle model featuring multiple types of housing investment to understand the large responses of residential investment. Consistent with the microdata, the model generates lumpy debt accumulation, lumpy housing investment and a ...
Working Paper
Credit, bankruptcy, and aggregate fluctuations
We ask two questions related to how access to credit affects the nature of business cycles. First, does the standard theory of unsecured credit account for the high volatility and procyclicality of credit and the high volatility and countercyclicality of bankruptcy filings found in U.S. data? Yes, it does, but only if we explicitly model recessions as displaying countercyclical earnings risk (i.e., rather than having all households fare slightly worse than normal during recessions, we ensure that more households than normal fare very poorly). Second, does access to credit smooth aggregate ...
Working Paper
State-Dependent Local Projections
Do state-dependent local projections asymptotically recover the population responses of macroeconomic aggregates to structural shocks? The answer to this question depends on how the state of the economy is determined and on the magnitude of the shocks. When the state is exogenous, the local projection estimator recovers the population response regardless of the shock size. When the state depends on macroeconomic shocks, as is common in empirical work, local projections only recover the conditional response to an infinitesimal shock, but not the responses to larger shocks of interest in many ...
Working Paper
Limited Participation in Equity Markets and Business Cycles
This paper studies how the rise in US households' participation in equity markets affects the transmission of macroeconomic shocks to the economy. I embed limited participation into a New Keynesian framework for the US economy to analyze the individual and aggregate effects of higher participation. I derive three main results. First, participants are relatively more responsive to shocks than nonparticipants. Second, higher participation reduces the effectiveness of monetary policy. Third, with higher participation the economy becomes less volatile. I contrast key predictions of my model with ...
Working Paper
Reconciling Unemployment Claims with Job Losses in the First Months of the COVID-19 Crisis
In the spring of 2020, many observers relied heavily on weekly initial claims for unemployment insurance benefits (UI) to estimate contemporaneous reductions in US employment induced by the COVID-19 pandemic. Though UI claims provided a timely, high-frequency window into mounting layoffs, the cumulative volume of initial claims filed through the May reference week substantially exceeded realized reductions in payroll employment and likely contributed to the historically large discrepancy between consensus expectations of further April-to-May job losses and the strong job gains reflected in ...
Working Paper
Can Intangible Capital Explain Cyclical Movements in the Labor Wedge?
Intangible capital is an important factor of production in modern economies that is generally neglected in business cycle analyses. We demonstrate that intangible capital can have a substantial impact on business cycle dynamics, especially if the intangible is complementary with production capacity. We focus on customer capital: the capital embodied in the relationships a firm has with its customers. Introducing customer capital into a standard real business cycle model generates a volatile and countercyclical labor wedge, due to a mismeasured marginal product of labor. We also provide new ...
Working Paper
Macro Risks and the Term Structure of Interest Rates
We use non-Gaussian features in U.S. macroeconomic data to identify aggregate supply and demand shocks while imposing minimal economic assumptions. Recessions in the 1970s and 1980s were driven primarily by supply shocks, later recessions were driven primarily by demand shocks, and the Great Recession exhibited large negative shocks to both demand and supply. We estimate "macro risk factors" that drive "bad" (negatively skewed) and "good" (positively skewed) variation for supply and demand shocks. The Great Moderation is mostly accounted for by a reduction in good variance. In contrast, ...
Working Paper
The Ins and Outs of Self-Employment: An Estimate of Business Cycle and Trend Effects
We examine quarterly microlevel data on labor market transitions taken from the Current Population Survey from 1990 to 2014 to estimate how the business cycle affects transitions into and out of self-employment from other labor market states. We control for individual demographics and occupational influences in our analysis to better pinpoint the effect of demand growth on these transitions. We find that changes in demand conditions substantially influence the marginal rate of transition into and out of self-employment from other labor market states, after taking into account demographic and ...
Working Paper
The Channels of International Comovement
How does exposure to international markets affect returns and cash flow comovements? Foreign bond owners, lenders, affiliates, investors, customers, and suppliers all transmit country shocks to companies. Most multinationals have many of these exposures simultaneously within the same foreign market. Returns and cash flows of two companies comove when exposed to the same country through the same channel. Within-country exposure through different channels is generally associated with lower comovement, in line with an operational hedging strategy. This evidence can help reconcile how, on ...
Discussion Paper
What Do Banks Do with All That \\"Fracking\\" Money?
Banks play a crucial role in the economy by channeling funds from savers to borrowers. The ability of banks to accomplish this intermediation has become an important element in understanding the causes and consequences of business cycles. In a recent staff report, I investigate how a positive deposit windfall translates into investments by banks. This post, the first of two, shows how the development of new energy resources has led to deposit inflows to banks and how that can be used to estimate banks? investment decisions over the recent business cycle. The second post will look at factors ...