Macroeconomics and Heterogeneity
Friday, Jan. 4, 2019 10:15 AM - 12:15 PM
- Chair: Adrien Auclert, Stanford University
Macroeconomic Effects of Debt Relief: Consumer Bankruptcy Protections in the Great Recession
AbstractThis paper uses cross-state variation in bankruptcy homestead exemptions and a general equilibrium model to test whether ex-post debt forgiveness can stabilize macroeconomic activity during a debt-laden recession. We begin by documenting that states with more and less generous bankruptcy exemptions had statistically identical macroeconomic outcomes during the 2001-2007 period. Starting in 2008, however, states with more generous bankruptcy exemptions had significantly smaller declines in local non-tradable employment and larger increases in consumer debt write-downs. We then develop a general equilibrium model that matches these reduced form estimates to recover the aggregate effect of consumer debt forgiveness and conduct policy counterfactuals. Substantial nominal rigidities are required to rationalize our empirical estimate of a cross-state debt relief multiplier of around 2 for nontradable employment. Our model suggests that debt relief in affected regions boosted employment everywhere because of tradable employment linkages. These results are consistent with the hypothesis that ex-post debt forgiveness can substitute for monetary policy in reducing the real impact of financial crises.
Accounting for Heterogeneity
AbstractOne “industry standard” methodology for model evaluation in Macroeconomics is Business Cycle Accounting (Chari, Kehoe and McGrattan, 2008). In this paper, we generalize this framework to allow for an analysis of heterogeneity, where distortions are introduced via individual specific wedges. We use this framework to explore the role of market incompleteness for business cycle fluctuations.
Income and Wealth Distribution in Macroeconomics: A Continuous-Time Approach
AbstractWe recast the Aiyagari-Bewley-Huggett model of income and wealth distribution in continuous time. This workhorse model – as well as heterogeneous agent models more generally – then boils down to a system of partial differential equations, a fact we take advantage of to make two types of contributions. First, a number of new theoretical results: (i) an analytic characterization of the consumption and saving behavior of the poor, particularly their marginal propensities to consume; (ii) a closed-form solution for the wealth distribution in a special case with two income types; (iii) a proof that here is a unique stationary equilibrium if the intertemporal elasticity of substitution is weakly greater than one; (iv) a characterization of “soft” borrowing constraints. Second, we develop a simple, efficient and portable algorithm for numerically solving for equilibria in a wide class of heterogeneous agent models, including – but not limited to – the Aiyagari-Bewley-Huggett model.
- E3 - Prices, Business Fluctuations, and Cycles
- E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy