Households who wish to extract home equity through refinancing their mortgage face a hidden transaction cost. The real value of the fixed nominal mortgage payment declines over time with inflation. The change in the real value of the mortgage payments from taking on a new mortgage is positive...

This paper studies the link between rising income uncertainty and household fertility patterns in an Aiyagari-Bewley-Huggett framework augmented to include fertility decisions and infertility risk. Building on Becker and Tomes (1976), I model fertility decisions as sequential, irreversible...

This paper quantifies the welfare implications of the U.S. Social Security program during the Great Recession. We find that the average welfare losses due to the Great Recession for agents alive at the time of the shock are notably smaller in an economy with Social Security relative to an...

This paper reconsiders the role of macroeconomic shocks and policies in determining the Great Recession and the subsequent recovery in the US. The Great Recession was mainly caused by a large demand shock and by the ZLB on the interest rate policy. In contrast with previous findings, the...

Participation in the stock market is limited, especially early in life. By contrast, human capital investment is widespread, especially early in life. Returns to equity are constant across households, while returns to human capital vary. The contribution of this paper is to demonstrate that once...

This paper examines households' self-insurance in financial markets when a rare personal disaster, such as disability or long-term unemployment, may occur during working years. Personal disaster risk alters lifetime ex-ante investment choices, even if most workers will not experience a disaster....

Public debt can be optimal in standard incomplete market models with infinitely lived agents, since the associated capital crowd-out induces a higher interest rate. The higher interest rate encourages individuals to save and, hence, better self-insure against idiosyncratic labor earnings risk....

This paper employs a calibrated model of the US economy to analyze the boom and bust in house prices as well as the shifts in the distribution of wealth during the years around the Great Recession. We replicate the dynamics of the housing market using shocks to aggregate income, the distribution...

We propose a novel approach to estimate household income uncertainty at various future horizons and characterize how the estimated uncertainty evolves over the life cycle. We measure income uncertainty as the variance of linear forecast errors conditional on information available to households...

We construct a theoretical model of labor markets with human capital accumulation to understand and quantify the earnings losses for young workers generated by unemployment: unemployment represents time forgone in terms of human capital accumulation, which adversely affects long-term income...