THE WEALTH DISTRIBUTION WITH DURABLE GOODS

This paper studies the effect that illiquid assets and collateral credit frictions have on the level of wealth inequality in a standard model of ex-ante heterogenous agents with idiosyncratic uncertainty. We calibrate our model so that its steady state statistics match selected aggregate statistics of the U.S. economy and data on the earnings distribution. We find that adding illiquid assets and collateral credit frictions decreases wealth inequality decreases slightly relative to an economy with liquid assets and no credit frictions. The effect is small because these frictions mostly affect poor households that account for a small fraction of aggregate wealth. Nevertheless, our richer model allows us to study other dimensions of wealth inequality. In particular, our model replicates the fact that financial assets are more concentrated than total wealth, while residential assets are less concentrated. Furthermore, we document that, in the U.S., the earnings and housing distributions are remarkably similar. Our model can account for this fact so long as the earnings process is fairly persistent

What Can Explain Excess Smoothness and Sensitivity of State-Level Consumption?

This article estimates marginal propensities to consume (MPC) out of current and lagged income for U.S. states using panel data regressions that control for time-specific and state-level fixed effects. The MPCs vary across states, in particular, the MPC out of current income is higher in states where income is more persistent and the MPC out of lagged income is lower in agricultural states. Several models of individual consumer behavior are analyzed and simulated in order to isolate a model which is able to match the estimated MPCs well.Permanent Income, Credit Rationing, Precautionary saving, Time-Aggregation, Durable Goods, Risk Sharing.

Childhood Determinants of Risk Aversion: The Long Shadow of Compulsory Education

We study the determinants of individual attitudes towards risk and,in particular,why some individuals exhibit extremely high risk aversion. Using data from the Panel Study of Income Dynamics we find that policy induced increases in high school graduation rates lead to significantly fewer individuals being highly risk averse in the next generation. Other significant determinants of risk aversion are age, sex, and parents' risk aversion. We verify that risk aversion matters for economic behavior in that it predicts individuals' volatility of income.schooling reforms; risk attitudes; intergenerational persistence

The ability to eat cheaper home-cooked meals more often might explain why people appear to spend less money after retirement.

A number of studies suggest that those who have retired spend significantly less money than those who are still working. This might imply that many people have insufficient savings for retirement. Using data from Spain, Maria Jose Luengo-Prado and Almudena Sevilla-Sanz take issue with this perspective. Noting that much of the reduction in spending is related to food expenditure, they argue that in many cases reduced spending simply reflects the fact that those who are retired have more time to use home-produced goods

Consumption, Retirement and Life-cycle Prices: Evidence From Spain.

Evidence from several countries reveals a substantial drop in household consumption around retirement age that some researchers believe is difficult to reconcile with standard life-cycle models. Using detailed expenditure data from a Spanish panel survey, we find no evidence of a consumption-retirement puzzle in Spain for the period of 1985-2004. However, we find a drop in food expenditure at home from 1998 to 2004 and evidence on households paying lower prices for the food they purchase after retirement in this latter period. Our findings are consistent with a household model that allows for home production whereby retirees substitute away from market goods to home production, as long as one accounts for the greater participation in housework by men after retirement coinciding with the latter period of the survey

The Buffer-Stock Model and the Aggregate Propensity to Consume: A Panel-Data Study of the US States

We simulate a buffer-stock model of consumption, explicitly aggregate over consumers, and estimate aggregate marginal propensities to consume out of current and lagged income using simulated data generated by the model. We calculate the predicted marginal effects of changing persistence of income shocks, aggregate-level uncertainty, and individual-level risk. Next, we estimate marginal propensities for US states using panel-data methods. We find effects of persistence that clearly correspond to the predictions of the model and while the effect of aggregate uncertainty cannot be determined precisely, indicators of individual level uncertainty have strong effects consistent with the model. Overall, the buffer-stock model clearly helps explain differences in consumer behaviour across states.buffer-stock; consumption; precautionary saving

Consumption, Retirement and Life-cycle Prices: Evidence From Spain

Evidence from several countries reveals a substantial drop in household consumption around retirement age that some researchers believe is difficult to reconcile with standard life-cycle models.� Using detailed expenditure data from a Spanish panel survey, we find no evidence of a consumption-retirement puzzle in Spain for the period of 1985-2004.� However, we find a drop in food expenditure at home from 1998 to 2004 and evidence on households paying lower prices for the food they purchase after retirement in this latter period.� Our findings are consistent with a household model that allows for home production whereby retirees substitute away from market goods to home production, as long as one accounts for the greater participation in housework by men after retirement coinciding with the latter period of the survey.Consumption, Retirement, Home-production, Household, Social norms