Heterogeneous Dynasties and Long-Run Mobility

Recent empirical work has demonstrated a positive correlation between grandparent-child wealth-rank, even after controlling for parent-child wealth-rank, and a positive correlation between dynastic wealth-ranks across almost 600 years. We show that a simple heterogeneous agents model with idiosyncratic wealth returns generates a realistic wealth distribution but fails to capture these long-run patterns of wealth mobility. An auto-correlated returns specification of this model also fails to capture both short and long-run mobility. However, an extension of the heterogeneous agents model which includes permanent heterogeneity in wealth returns is able to simultaneously match the wealth distribution and short- and long-run wealth mobility.

Evaluating the Effects of the Home Affordable Modification Program

The Home Affordable Modification Program (HAMP) was a loan modification program introduced in 2009, in the U.S., to assist highly indebted homeowners with avoiding foreclosure. This program also encouraged private lenders to offer more sustainable modifications. This paper studies the role of HAMP in preventing higher foreclosures rates during and after the Great Recession, in the context of a general-equilibrium heterogeneous-agents model with two types of households (Borrowers and Savers), uninsurable idiosyncratic risk, and both private and HAMP modifications. The main result is that, without HAMP, the peak in the foreclosure rate could have been 50% larger (3.2 percent vs 2.2 percent in data).

Quality of institutions and macroeconomic performance

This thesis studies the importance of institutional quality on macroeconomic performance. To do so, we augment the standard real business cycle (RBC) model with rent seeking competition. The idea is that agents allocate a part of their effort time competing with each other for a fraction of a contestable prize. At first, our analysis considers alternative contestable prizes like government transfers, total tax revenue, economy-wide output and economy-wide income in a homogeneous agents RBC model. Then, we extend our analysis to a heterogeneous agents model (capitalists and workers), where we consider the contestable prize to be the "income of the others", i.e the contestable prize for workers is the income of capitalists and the contestable prize of capitalists is the income of workers.

THE EFFECTS OF HIGH BANKING SPREADS IN AN INFORMAL ECONOMY

We investigate the aggregate and distributional effects of banking spreads in an economy with informality. We build a heterogeneous agents model with incomplete markets, credit frictions, and a rich occupational choice setting, in which informality is an option for both employers and workers. The main finding is that reductions in spreads for formal firms increase wages, output, and welfare but have a deleterious impact on unemployment and inequality. Dropping spreads for informal firms lead to reduction in inequality indicators at the expense of consumption and welfare. By calibrating the model for Brazil, we also find that a hypothetical extinction of the informal sector can be harmful for poor agents, but combined with a spread reduction, it can generate strong positive effects on output and welfare.

MARKET POWER AND THE AGGREGATE SAVING RATE

Can increasing market power cause a decrease in the aggregate savings? We answer this question by using a heterogeneous agents model that features both idiosyncratic labor and capital income risk. Under complete markets, the saving rate does not depend on the degree of market power, but when markets are incomplete, higher markups substantially reduce the aggregate saving rate. This is due to endogenous changes in the distribution of income and wealth. A calibration of the model using the observed changes in market power in the United States since the 1970s closely matches the decline in the US saving rate. Furthermore, when market power increases, the model generates distributional changes that are consistent with the data.

Wealth Share Analysis with “Fundamentalist/Chartist” Heterogeneous Agents

We build a multiassets heterogeneous agents model with fundamentalists and chartists, who make investment decisions by maximizing the constant relative risk aversion utility function. We verify that the model can reproduce the main stylized facts in real markets, such as fat-tailed return distribution and long-term memory in volatility. Based on the calibrated model, we study the impacts of the key strategies’ parameters on investors’ wealth shares. We find that, as chartists’ exponential moving average periods increase, their wealth shares also show an increasing trend. This means that higher memory length can help to improve their wealth shares. This effect saturates when the exponential moving average periods are sufficiently long. On the other hand, the mean reversion parameter has no obvious impacts on wealth shares of either type of traders. It suggests that no matter whether fundamentalists take moderate strategy or aggressive strategy on the mistake of stock prices, it will have no different impact on their wealth shares in the long run.