This paper uses an overlapping-generations dynamic general equilibrium model of residential sorting and intergenerational human capital accumulation to investigate effects of neighborhood externalities. In the model, households choose where to live and how much to invest toward the production of...

The intended effects of a government policy can be distorted by the public’s expectations about how strictly it will be enforced. If households and businesses cannot be certain that a policy will remain unchanged over its scheduled tenure, they will adjust their response to it to reflect this...

The purpose of this study is to estimate the shadow price of the legal status of farm workers. A hedonic function in terms of farm work experience, gender, education level, language skill, and legal status is estimated with control variables for employer type, farm work type, as well as other...

The United States is not the first advanced modern economy to face a serious federal budget challenge. A number of countries have seen their debt rise to unacceptable levels in recent decades, and they have taken steps to rein it in. We explore the approaches that Canada and the United Kingdom...

Public debate about the effects of government spending heated up after record-large stimulus packages were enacted to address the fallout of the fi nancial crisis. Almost as noticeable as the discord was the absence of consensus among prominent economists on the issue. While it seems a simple...

Starting in the early 1990s credit scoring became widespread and central in credit granting decisions. Credit scores are scalar representations of default risk. They are used, in turn, to price credit, and as a result alter household borrowing and default decisions. We build on recent work on...

This paper derives the general equilibrium effects of rational inattention (or RI; Sims 2003, 2010) in a model of incomplete income insurance (Huggett 1993, Wang 2003). We show that, under the assumption of CARA utility with Gaussian shocks, the Permanent Income Hypothesis (PIH) arises in...

In this paper, we examine the joint consumption-portfolio decision of an agent with limited information-processing capacity (rational inattention or RI) in the sense of Sims (2003) within a non-linear-quadratic (non-LQ) setting. Our model predicts that, as processing capacity falls, agents...

In 2005, reforms made formal personal bankruptcy much more costly. Shortly after, the US began to experience its most severe recession in seventy years, and while personal bankruptcy rates rose, they rose only modestly given the severity of the rise in unemployment. By contrast, informal default...

This paper studies the aggregate dynamics of durable and nondurable consumption under slow information diffusion (SID) due to noisy observations and learning within the permanent income framework. We show that SID can significantly improve the model’s predictions on the joint behavior of...