Publications

This note argues that the Fed does not have much effect on inflation expectations and that its effect on aggregate demand, and thus on inflation, is modest. Econometric results suggest that a short term interest rate increase of 1.0 percentage point results in a decrease in inflation of 0.43 percentage points after five quarters. The unemployment rate is 0.17 percentage points higher. Therefore, lowering inflation by 2 percentage points, if this is needed, requires about a 4 to 5 percentage point increase in the interest rate, with the full effect taking about five quarters.

We specify and estimate a lifecycle model of consumption, housing demand and labor supply in an environment where individuals may file for bankruptcy or default on their mortgage. Uncertainty in the model is driven by house price shocks, education specific productivity shocks, and catastrophic consumption events, while bankruptcy is governed by the basic institutional framework in the US as implied by Chapter 7 and Chapter 13. The model is estimated using micro data on credit reports and mortgages combined with data from the American Community Survey. We use the model to understand the relative importance of the two chapters (7 and 13) for each of our two education groups that differ in both preferences and wage profiles. We also provide an evaluation of the BAPCPA reform. Our paper demonstrates importance of distributional effects of Bankruptcy policy.

We characterize the distributions of posterior quantiles under a given prior. Unlike

the distributions of posterior means, which are known to be mean-preserving contractions

of the prior, the distributions of posterior quantiles coincide with a first-order

stochastic dominance interval bounded by an upper and a lower truncation of the

prior. We apply this characterization to several environments, ranging across political

economy, Bayesian persuasion, industrial organization, econometrics, finance, and

accounting.