Jose Mustre-del-Rio's Homepage

I am a Senior Economist at the Research Department of the Federal Reserve Bank of Kansas City. My research interests are in macroeconomics and labor economics with a focus on labor supply and wealth. 


Wealth and Labor Supply Heterogeneity (Review of Economic Dynamics, 18, 619-634, 2015.)

This paper examines the importance of ex-ante heterogeneity for understanding the relationship between wealth and labor supply when markets are incomplete. An infinite horizon model is estimated where labor supply is indivisible and households are ex-ante heterogeneous in their labor disutility and market skills. The model replicates key features of the distribution of employment, wages, and wealth observed in the data. Importantly, it reverses the prediction that employment falls with wealth, a pervasive feature of models without ex-ante heterogeneity. A byproduct of the model's empirical performance is that it implies labor supply responses to unanticipated wage changes (e.g. Frisch elasticities) that are a half to two-thirds of those recovered from models with only ex-post heterogeneity.

Job Duration Over the Cycle  (Journal of Money, Credit & Banking, Vol. 51, NO. 6, September 2019.)

Evidence from the National Longitudinal Survey of Youth (NLSY) suggests that the cyclicality of job duration depends on the worker’s prior and future employment status. For example, among matches formed with previously nonemployed workers, those that end with the worker returning to nonemployment display procyclical duration. In contrast, matches that end because the worker switches to another job have countercyclical duration. Moreover, differences in starting wages do not account for these patterns.

The Persistence of Financial Distress with Kartik B. Athreya and Juan M. Sánchez (UPDATED)

Accepted Review of Financial Studies.

Using proprietary panel data, we show that many US consumers experience financial distress (35% when distress is defined by having debt in severe delinquency, e.g.) at some point in their lives. However, most distress events are concentrated among a much smaller proportion of consumers in persistent trouble: fewer than 10% of borrowers account for half of all distress events. These facts can be largely accounted for in a straightforward extension of a workhorse model of unsecured debt with informal default that accommodates a simple form of heterogeneity in time preference.

Working Papers

(Federal Reserve Bank of Richmond RWP 19-13)  

During the Great Recession, the collapse of consumption across the US varied greatly but systematically with house-price declines. Our message is that household financial health matters for understanding this relationship. Two facts are essential for our finding: (1) the decline in house prices led to an increase in household financial distress (FD) prior to the decline in income during the recession, and (2) at the zip-code level, the prevalence of FD prior to the recession was positively correlated with house-price declines at the onset of the recession. We measure the power of the financial distress channel using a rich estimated-dynamic model of FD. We find that these channels amplify the aggregate drop in consumption by 7% and 45%, respectively.

(Federal Reserve Bank of Kansas City RWP 12-06)  R&R American Economic Journal: Macroeconomics.

We study the effects of market incompleteness on occupational mobility. Under incomplete markets, low-asset workers remain in low- productivity occupations even when the expected value of switching is positive. In a calibrated model, completing markets against wage risk improves welfare by up to 2.5 percent of lifetime consumption, in part because workers move into better occupations, but also thanks to improved consumption smoothing. We also investigate policies affecting mobility. Subsidizing retraining with additional taxes increases mobility away from low-productivity occupations and is welfare improving. In contrast, an equivalent tax increase redistributed in lump-sum fashion decreases mobility and barely changes welfare. 

(Federal Reserve Bank of Kansas City RWP 14-17).

This paper studies the interaction between nominal rigidities, labor market frictions, and consumption risk in a model where firms face sticky prices and post wage contracts to attract risk-averse workers in a frictional labor market. Comparing a calibrated version of the model with two alternative versions—one that separates search and pricing frictions between two types of firms, and one in which a representative household makes consumption and employment decisions at an aggregate level—highlights the importance of integrating labor market and price-setting frictions with individual consumption risk. Separating search and pricing frictions between wholesale and retail sectors increases movements in inflation while muting those in labor markets and other macroeconomic variables. Meanwhile, using a representative household model significantly diminishes the effects of shocks on output and inflation, but increases the effects on vacancies and unemployment.

Works in Progress

Micro-founding Preference Shocks in DSGE Models with  Jonathan L. Willis

Heterogeneity in U.S. Labor Market Flows with Didem Tüzemen and Jonathan L. Willis

The Aggregate Implications of Labor Supply Near Retirement  with William Peterman     

Downward Nominal Rigid Wages, Inflation, and Unemployment with Andrew Foerster

Super Cool Computational Stuff

Solving the Bewley-Huggett-Aiyagari-Imrohoroglu model with value function iteration on a GPU (slides) (codes)

Disclaimer: The views expressed in this website are solely mine and do not represent the views of the Federal Reserve Bank of Kansas City of the Federal Reserve System.
Subpages (1): GPU stuff