Pub Date : 2025-04-18DOI: 10.1016/j.red.2025.101288
Alina K. Bartscher , Moritz Kuhn , Moritz Schularick , Ulrike I. Steins
Using new household-level data, we study the secular increase in U.S. household debt and its distribution since 1950. Most of the debt were mortgages, which initially grew because more households borrowed. Yet after 1980, debt mostly grew because households borrowed more. We uncover home equity extraction, concentrated in the white middle class, as the largest cause, strongly affecting intergenerational inequality and life-cycle debt profiles. Remarkably, the additional debt did not lower households' net worth because of rising house prices. We conclude that asset-price-based borrowing became an integral part of households' consumption-saving decisions, yet at the cost of higher financial fragility.
{"title":"The distribution of household debt in the United States, 1950-2022","authors":"Alina K. Bartscher , Moritz Kuhn , Moritz Schularick , Ulrike I. Steins","doi":"10.1016/j.red.2025.101288","DOIUrl":"10.1016/j.red.2025.101288","url":null,"abstract":"<div><div>Using new household-level data, we study the secular increase in U.S. household debt and its distribution since 1950. Most of the debt were mortgages, which initially grew because more households borrowed. Yet after 1980, debt mostly grew because households borrowed more. We uncover home equity extraction, concentrated in the white middle class, as the largest cause, strongly affecting intergenerational inequality and life-cycle debt profiles. Remarkably, the additional debt did not lower households' net worth because of rising house prices. We conclude that asset-price-based borrowing became an integral part of households' consumption-saving decisions, yet at the cost of higher financial fragility.</div></div>","PeriodicalId":47890,"journal":{"name":"Review of Economic Dynamics","volume":"57 ","pages":"Article 101288"},"PeriodicalIF":2.3,"publicationDate":"2025-04-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143868906","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-04-16DOI: 10.1016/j.red.2025.101287
Genevieve Nelson
From 2000-2006 U.S. house prices and mortgage credit grew while the relative cost of mortgage credit fell – particularly for privately securitized mortgages – suggesting a credit supply expansion. This paper compares innovations in the securitization of mortgage credit (a credit supply shock) to other candidate credit supply shocks. I model a two-layered mortgage market. This generates a novel balance sheet effect: changes in aggregate mortgage credit quantity are linked to changes in mortgage spreads via the interaction of financially constrained commercial banks and mortgage securitizers. Innovation in securitization (a direct relaxation of the securitizers' financial constraint) matches mortgage market dynamics.
{"title":"Securitization and house price growth","authors":"Genevieve Nelson","doi":"10.1016/j.red.2025.101287","DOIUrl":"10.1016/j.red.2025.101287","url":null,"abstract":"<div><div>From 2000-2006 U.S. house prices and mortgage credit grew while the relative cost of mortgage credit fell – particularly for privately securitized mortgages – suggesting a credit supply expansion. This paper compares innovations in the securitization of mortgage credit (a credit supply shock) to other candidate credit supply shocks. I model a two-layered mortgage market. This generates a novel <em>balance sheet effect</em>: changes in aggregate mortgage credit quantity are linked to changes in mortgage spreads via the interaction of financially constrained commercial banks and mortgage securitizers. Innovation in securitization (a direct relaxation of the securitizers' financial constraint) matches mortgage market dynamics.</div></div>","PeriodicalId":47890,"journal":{"name":"Review of Economic Dynamics","volume":"57 ","pages":"Article 101287"},"PeriodicalIF":2.3,"publicationDate":"2025-04-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143869035","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-04-03DOI: 10.1016/j.red.2025.101286
Andrew Berg , Edward F. Buffie , Mariarosaria Comunale , Chris Papageorgiou , Luis-Felipe Zanna
The current wave of technological revolution is changing the way policies work. This paper examines the growth and distributional implications of cuts in the corporate tax rate and public investment in infrastructure and education in a neoclassical growth model with “robot” capital (a broad definition of robots, Artificial Intelligence, computers, big data, digitalization, networks, sensors and servos). We find that incorporating robot capital into the model makes a big difference to policy outcomes: the trickle-down effects of corporate tax cuts on unskilled wages are attenuated, and the advantages of investment in infrastructure, and especially in education, are bigger. Based on our calibrations, grounded in new empirical estimates, infrastructure investment and corporate tax cuts dominate investment in education in a “traditional” economy. However, in an economy with robots, infrastructure investment dominates corporate tax cuts, while investment in education tends to produce the highest welfare gains of all.
{"title":"Searching for wage growth: Policy responses to the “new machine age”","authors":"Andrew Berg , Edward F. Buffie , Mariarosaria Comunale , Chris Papageorgiou , Luis-Felipe Zanna","doi":"10.1016/j.red.2025.101286","DOIUrl":"10.1016/j.red.2025.101286","url":null,"abstract":"<div><div>The current wave of technological revolution is changing the way policies work. This paper examines the growth and distributional implications of cuts in the corporate tax rate and public investment in infrastructure and education in a neoclassical growth model with “robot” capital (a broad definition of robots, Artificial Intelligence, computers, big data, digitalization, networks, sensors and servos). We find that incorporating robot capital into the model makes a big difference to policy outcomes: the trickle-down effects of corporate tax cuts on unskilled wages are attenuated, and the advantages of investment in infrastructure, and especially in education, are bigger. Based on our calibrations, grounded in new empirical estimates, infrastructure investment and corporate tax cuts dominate investment in education in a “traditional” economy. However, in an economy with robots, infrastructure investment dominates corporate tax cuts, while investment in education tends to produce the highest welfare gains of all.</div></div>","PeriodicalId":47890,"journal":{"name":"Review of Economic Dynamics","volume":"57 ","pages":"Article 101286"},"PeriodicalIF":2.3,"publicationDate":"2025-04-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143816635","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-03-17DOI: 10.1016/j.red.2025.101285
Guillermo Hausmann-Guil
DSGE models with incomplete markets (with one or many assets) are typically challenging to solve due to their lack of stable dynamics as risk goes to zero. To bypass this difficulty, I propose to first approximate the local dynamics of a tractable auxiliary model and then apply regular perturbation to some of the parameters to reach the model of interest. This method is easy to implement with available packages and allows researchers to solve a wide class of DSGE models around a large subset of the state-space while still relying on the implicit function theorems. Exploiting these properties, the paper develops a simple algorithm to find an auxiliary model whose deterministic steady state equals the stochastic steady state of the model of interest and builds the perturbation solution around this point. The lead application extends the two-period, multi-asset model of Coeurdacier and Gourinchas (2016, JME) to an infinite horizon setup. The calibrated model with bonds and equities delivers a large level of equity home bias and a natural link between trade and financial openness, with external asset positions comparable to the data. However, the model generates excessive risk-sharing and counterfactual co-movements of gross capital flows.
{"title":"Solving DSGE models with incomplete markets by perturbation","authors":"Guillermo Hausmann-Guil","doi":"10.1016/j.red.2025.101285","DOIUrl":"10.1016/j.red.2025.101285","url":null,"abstract":"<div><div>DSGE models with incomplete markets (with one or many assets) are typically challenging to solve due to their lack of stable dynamics as risk goes to zero. To bypass this difficulty, I propose to first approximate the local dynamics of a tractable auxiliary model and then apply regular perturbation to some of the parameters to reach the model of interest. This method is easy to implement with available packages and allows researchers to solve a wide class of DSGE models around a large subset of the state-space while still relying on the implicit function theorems. Exploiting these properties, the paper develops a simple algorithm to find an auxiliary model whose deterministic steady state equals the stochastic steady state of the model of interest and builds the perturbation solution around this point. The lead application extends the two-period, multi-asset model of <span><span>Coeurdacier and Gourinchas</span></span> (<span><span>2016</span></span>, JME) to an infinite horizon setup. The calibrated model with bonds and equities delivers a large level of equity home bias and a natural link between trade and financial openness, with external asset positions comparable to the data. However, the model generates excessive risk-sharing and counterfactual co-movements of gross capital flows.</div></div>","PeriodicalId":47890,"journal":{"name":"Review of Economic Dynamics","volume":"57 ","pages":"Article 101285"},"PeriodicalIF":2.3,"publicationDate":"2025-03-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143644114","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-03-12DOI: 10.1016/j.red.2025.101284
Fabrice Collard , Omar Licandro
This paper embeds firm dynamics into the Neoclassical model in a framework with partially reversible capital and investment distortions, allowing for a simple characterization of the transitional dynamics of economies moving towards greater selection. At equilibrium, aggregate technology is Neoclassical, with the quality of capital and the depreciation rate depending on selection. As investment distortions are corrected, selection increases, and both output per capita and welfare rise at the steady state. However, selection destroys existing production capacities, leading to transitional welfare losses. When calibrated to the US, the model shows that developing countries reducing investment distortions to US levels would experience substantial steady-state welfare gains, though transitional costs could absorb 70% to 76% of these gains. While the associated welfare gains from selection at steady-state are significant, between 10% and 23%, transitional costs largely offset these additional welfare gains.
{"title":"The neoclassical model and the welfare costs of selection","authors":"Fabrice Collard , Omar Licandro","doi":"10.1016/j.red.2025.101284","DOIUrl":"10.1016/j.red.2025.101284","url":null,"abstract":"<div><div>This paper embeds firm dynamics into the Neoclassical model in a framework with partially reversible capital and investment distortions, allowing for a simple characterization of the transitional dynamics of economies moving towards greater selection. At equilibrium, aggregate technology is Neoclassical, with the quality of capital and the depreciation rate depending on selection. As investment distortions are corrected, selection increases, and both output per capita and welfare rise at the steady state. However, selection destroys existing production capacities, leading to transitional welfare losses. When calibrated to the US, the model shows that developing countries reducing investment distortions to US levels would experience substantial steady-state welfare gains, though transitional costs could absorb 70% to 76% of these gains. While the associated welfare gains from selection at steady-state are significant, between 10% and 23%, transitional costs largely offset these additional welfare gains.</div></div>","PeriodicalId":47890,"journal":{"name":"Review of Economic Dynamics","volume":"57 ","pages":"Article 101284"},"PeriodicalIF":2.3,"publicationDate":"2025-03-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143642211","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-13DOI: 10.1016/j.red.2025.101274
R. Anton Braun , Daisuke Ikeda
We propose a quantitative model of monetary policy over the lifecycle with endogenous portfolio choices. Our model reproduces the average age profiles of asset portfolios, the empirical responses of aggregate variables, and the microeconomic responses of different age groups to a tightening in monetary policy. Households disagree about the benefits of a tighter monetary policy. Consumption and welfare of older age groups increase, but consumption and welfare of younger households fall.
{"title":"Monetary policy over the lifecycle","authors":"R. Anton Braun , Daisuke Ikeda","doi":"10.1016/j.red.2025.101274","DOIUrl":"10.1016/j.red.2025.101274","url":null,"abstract":"<div><div>We propose a quantitative model of monetary policy over the lifecycle with endogenous portfolio choices. Our model reproduces the average age profiles of asset portfolios, the empirical responses of aggregate variables, and the microeconomic responses of different age groups to a tightening in monetary policy. Households disagree about the benefits of a tighter monetary policy. Consumption and welfare of older age groups increase, but consumption and welfare of younger households fall.</div></div>","PeriodicalId":47890,"journal":{"name":"Review of Economic Dynamics","volume":"56 ","pages":"Article 101274"},"PeriodicalIF":2.3,"publicationDate":"2025-02-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143430259","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-13DOI: 10.1016/j.red.2025.101273
Fengqi Liu , Keqing Liu , Jianpo Xue
This paper demonstrates that, in a standard real business cycle (RBC) model, internal consumption habits alone are sufficient to generate positive comovements among key macroeconomic aggregates in response to news about future productivity. We highlight the prospective channel associated with internal habits, through which the effect of news shocks is transmitted to the present, stimulating current consumption, labor, and investment. Without this channel, other forms of preferences such as external habits fail to generate the positive comovements. The quantitative performance of the model is also discussed. Arguably, we provide a nearly minimal departure from the RBC framework to generate news-driven business cycles.
{"title":"Habit formation and news-driven business cycles","authors":"Fengqi Liu , Keqing Liu , Jianpo Xue","doi":"10.1016/j.red.2025.101273","DOIUrl":"10.1016/j.red.2025.101273","url":null,"abstract":"<div><div>This paper demonstrates that, in a standard real business cycle (RBC) model, internal consumption habits <em>alone</em> are sufficient to generate positive comovements among key macroeconomic aggregates in response to news about future productivity. We highlight <em>the prospective channel</em> associated with internal habits, through which the effect of news shocks is transmitted to the present, stimulating current consumption, labor, and investment. Without this channel, other forms of preferences such as external habits fail to generate the positive comovements. The quantitative performance of the model is also discussed. Arguably, we provide a nearly minimal departure from the RBC framework to generate news-driven business cycles.</div></div>","PeriodicalId":47890,"journal":{"name":"Review of Economic Dynamics","volume":"56 ","pages":"Article 101273"},"PeriodicalIF":2.3,"publicationDate":"2025-02-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143419841","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-13DOI: 10.1016/j.red.2025.101275
Minjie Deng , Chang Liu
This paper analyzes the impact of a balanced budget rule (BBR) on government financing costs and its implications for the government balance sheet. Exploiting the variation in BBR implementation across US states, we find that states with more stringent BBRs exhibit significantly lower bond spreads and credit default swap spreads, demonstrating the crucial role of default risk. A sovereign default model, which features long-term debt, endogenous investment and output, as well as a BBR, aligns with the empirical result. Calibrated to Illinois, our quantitative analysis suggests that implementing a BBR could dramatically decrease the state bond spread, gradually lower the debt, and improve welfare in the long run.
{"title":"Public financing under balanced budget rules","authors":"Minjie Deng , Chang Liu","doi":"10.1016/j.red.2025.101275","DOIUrl":"10.1016/j.red.2025.101275","url":null,"abstract":"<div><div>This paper analyzes the impact of a balanced budget rule (BBR) on government financing costs and its implications for the government balance sheet. Exploiting the variation in BBR implementation across US states, we find that states with more stringent BBRs exhibit significantly lower bond spreads and credit default swap spreads, demonstrating the crucial role of default risk. A sovereign default model, which features long-term debt, endogenous investment and output, as well as a BBR, aligns with the empirical result. Calibrated to Illinois, our quantitative analysis suggests that implementing a BBR could dramatically decrease the state bond spread, gradually lower the debt, and improve welfare in the long run.</div></div>","PeriodicalId":47890,"journal":{"name":"Review of Economic Dynamics","volume":"56 ","pages":"Article 101275"},"PeriodicalIF":2.3,"publicationDate":"2025-02-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143429762","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-12DOI: 10.1016/j.red.2025.101272
Jake Bradley
To understand the co-movement of vacancies and employment, an equilibrium model with two-sided screening is developed. On one side of the market, both employed and unemployed workers can evaluate multiple job openings simultaneously and decide which ones to apply for. On the other side, firms assess multiple applicants and choose their preferred candidates. This model is calibrated to reflect the U.S. economy. Consistent with data, the model generates significant volatility in vacancies, unemployment, and labor market flows over the business cycle. Moreover, differences in the search behaviors of employed and unemployed workers offer a theoretical explanation for the shift in the Beveridge curve observed after the 2008 recession.
{"title":"Worker-firm screening and the business cycle","authors":"Jake Bradley","doi":"10.1016/j.red.2025.101272","DOIUrl":"10.1016/j.red.2025.101272","url":null,"abstract":"<div><div>To understand the co-movement of vacancies and employment, an equilibrium model with two-sided screening is developed. On one side of the market, both employed and unemployed workers can evaluate multiple job openings simultaneously and decide which ones to apply for. On the other side, firms assess multiple applicants and choose their preferred candidates. This model is calibrated to reflect the U.S. economy. Consistent with data, the model generates significant volatility in vacancies, unemployment, and labor market flows over the business cycle. Moreover, differences in the search behaviors of employed and unemployed workers offer a theoretical explanation for the shift in the Beveridge curve observed after the 2008 recession.</div></div>","PeriodicalId":47890,"journal":{"name":"Review of Economic Dynamics","volume":"57 ","pages":"Article 101272"},"PeriodicalIF":2.3,"publicationDate":"2025-02-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143480494","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-06DOI: 10.1016/j.red.2025.101271
Nezih Guner , Yuliya A. Kulikova , Arnau Valladares-Esteban
In the US, the likelihood of a married woman entering the labor force in a given month increases by 60% if her husband loses his job, known as the added worker effect. However, only 1.5% to 3.5% of married women entering the labor force in a given month can be added workers. This raises the question of whether the added worker effect can significantly impact aggregate labor market outcomes. Building on Shimer (2012), we introduce a new methodology to evaluate how joint transitions of married couples across labor market states affect aggregate participation, employment, and unemployment rates. Our results show that the added worker effect significantly impacts aggregate outcomes, increasing married women's participation and employment by 0.72 and 0.65 percentage points each month. Additionally, the added worker effect reduces the cyclicality of married women's participation and unemployment, lowering the correlation between GDP's cyclical components and participation by 4.5 percentage points and unemployment by 8 percentage points.
{"title":"Does the added worker effect matter?","authors":"Nezih Guner , Yuliya A. Kulikova , Arnau Valladares-Esteban","doi":"10.1016/j.red.2025.101271","DOIUrl":"10.1016/j.red.2025.101271","url":null,"abstract":"<div><div>In the US, the likelihood of a married woman entering the labor force in a given month increases by 60% if her husband loses his job, known as the added worker effect. However, only 1.5% to 3.5% of married women entering the labor force in a given month can be added workers. This raises the question of whether the added worker effect can significantly impact aggregate labor market outcomes. Building on <span><span>Shimer (2012)</span></span>, we introduce a new methodology to evaluate how joint transitions of married couples across labor market states affect aggregate participation, employment, and unemployment rates. Our results show that the added worker effect significantly impacts aggregate outcomes, increasing married women's participation and employment by 0.72 and 0.65 percentage points each month. Additionally, the added worker effect reduces the cyclicality of married women's participation and unemployment, lowering the correlation between GDP's cyclical components and participation by 4.5 percentage points and unemployment by 8 percentage points.</div></div>","PeriodicalId":47890,"journal":{"name":"Review of Economic Dynamics","volume":"56 ","pages":"Article 101271"},"PeriodicalIF":2.3,"publicationDate":"2025-02-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143438096","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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