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  5. New Perspectives on Welfare Measurement in Macroeconomics
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New Perspectives on Welfare Measurement in Macroeconomics

Paper Session

Monday, Jan. 5, 2026 10:15 AM - 12:15 PM (EST)

Philadelphia Marriott Downtown, Room 305
Hosted By: Society for Economic Dynamics
  • Chair: Gabriel Chodorow-Reich, Harvard University

Sufficient Statistics for Measuring Forward-Looking Welfare

David Baqaee
,
University of California-Los Angeles
Ariel Burstein
,
University of California-Los Angeles
Yasutaka Koike-Mori
,
University of North Carolina-Chapel Hill

Abstract

We provide a method to measure welfare in money-metric terms, accounting for future expectations. Our approach relies on two key assumptions: (1) separability of the expenditure function between present and future, and (2) existence of households without idiosyncratic undiversifiable risk. We infer expectations about the future from observed consumption-savings choices of this subset of households. Our sufficient statistics methodology accommodates incomplete markets, lifecycle motives, non-rational expectations, non-exponential time discounting, and arbitrary functional forms. Application requires estimates of the intertemporal substitution elasticity, price changes over time, and repeated cross-sectional data on household income, balance sheets, and expenditures. Using PSID data from the United States, we find that static measures overstate cost-of-living increases, especially for younger and poorer households. Our estimates can be used to study the welfare consequences of dynamic stochastic shocks that affect households along different margins and time horizons.

Occupational Choice and the Intergenerational Mobility of Welfare

Corina Boar
,
New York University
Danial Lashkari
,
Federal Reserve Bank of New York

Abstract

How does parental income shape labor market outcomes? Standard measures of inter-
generational mobility typically focus on earnings as the main outcome, but parental income
may also influence children’s access to more fulfilling careers. Using U.S. survey data, we
show that children from higher-income families are significantly more likely to select occupations offering greater non-monetary qualities such as autonomy, intellectual stimulation, and workplace respect. To explain this pattern, we develop and estimate a model where parental resources allow children to prioritize occupational quality over earnings. When we adjust earnings to compensate for the monetary equivalent of these desirable qualities, intergenerational mobility falls by 15–35%, revealing that traditional income-based measures overstate the equality of opportunity. Finally, we document recent labor market shifts toward higher-quality occupations that raise our compensated measure of intergenerational mobility, suggesting structural changes that may have led to more equal distributions of opportunity.

Monetary and Fiscal Policy According to HANK-IO

Andreas Schaab
,
University of California-Berkeley
Stacy Tan
,
Harvard University

Abstract

This paper studies monetary and fiscal policy transmission in a multi-sector heterogeneous-agent New Keynesian model with an input-output network (“HANK-IO”). We document systematic household-sector linkages in micro data and calibrate our model to match them. To identify when these linkages have implications for policy transmission, we analytically characterize an as-if benchmark that features a strict decoupling between household and sectoral heterogeneity. Away from this benchmark, novel earnings and expenditure heterogeneity channels emerge that govern the propagation of demand and supply shocks. Quantitatively, these channels shape the transmission of stabilization policy to aggregates, as well as its distributional and sectoral consequences.

Homeownership and the Cost of Living

Chodorow-Reich Chodorow-Reich
,
Harvard University
Edward Glaeser
,
Harvard University
Xavier Jaravel
,
London School of Economics
Avi Lipton
,
Harvard University

Abstract

How should price indices account for durable goods like housing, which are debt-financed, held for years, and resold? This paper proposes a price index for shelter that addresses key limitations of owners’ equivalent rent and the one-period user cost. We first show in a stylized model that preference heterogeneity between owning and renting can rationalize differences between rental rates and the user cost but also implicates the welfare impact of shelter inflation. We measure this heterogeneity using a custom survey and find that households' willingness-to-pay for homeownership is both large and heterogeneous. We extend the insights of our stylized model to a general dynamic setting and derive a price index that depends on the timing of changes to non-durable consumption to offset changes in shelter costs and of foregone utility by households induced to rent rather than own. We calibrate a quantitative version to the survey evidence and other moments and apply our results to measure the change in the cost-of-shelter when mortgage rates increase.
JEL Classifications
  • E3 - Prices, Business Fluctuations, and Cycles
  • E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook