Jose Mustre-del-Rio's Homepage

I am a Research and Policy Officer at the Federal Reserve Bank of Kansas City. My research focuses on individual consumption, labor supply, and credit dynamics.


(Forthcoming, Journal of Money, Credit & Banking).

This paper examines the implications of interacting pricing frictions, labor market frictions, and consumption risk by comparing variants of a New Keynesian model. The model variants make alternative assumptions about whether hiring and pricing decisions occur within the same firm or across different firms, and whether workers pool income. Nonetheless, each model implies the same contract is offered to workers, making model comparisons transparent. The economys response to changes in unemployment benefits or persistently below-target inflation depends on whether hiring and pricing decisions are integrated. Meanwhile, the dynamics following technology or monetary shocks are shaped both by firm- and worker-level assumptions.

The Persistence of Financial Distress with Kartik B. Athreya and Juan M. Sánchez  (Review of Financial Studies, Vol. 32, No. 10, October 2019)

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.

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.

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.

Working Papers

Household Financial Distress and the Burden of "Aggregate" Shocks with with Kartik B. Athreya, Ryan Mather, and Juan M. Sánchez 
(Federal Reserve Bank of Kansas City RWP 20-13, Federal Reserve Bank of Richmond RWP 20-12 , Federal Reserve Bank of St Louis RWP 2019-025C)  

The goal of this paper is to show that household-level financial distress (FD) varies greatly, meaning there is unequal exposure to macroeconomic risk, and that FD can increase macroeconomic vulnerability. To do this, we first establish three facts: (i) regions in the U.S. vary significantly in their “FD-intensity,” measured either by how much additional credit households therein can access, or in how delinquent they typically are on debts, (ii) shocks that are typically viewed as “aggregate” in nature hit geographic areas quite differently, and (iii) FD is an economic “pre-existing condition”: the share of an aggregate shock borne by a region is positively correlated with the level of FD present at the time of the shock. Using an empirically disciplined and institutionally rich model of consumer debt and default, we show that in the shocks dealt by the Great Recession and in the ini- tial months in the COVID-19 pandemic, FD mattered. Our model implies that the uneven distribution of FD creates widely varying consumption responses to shocks. This is true even when subjecting regions (with dif- fering levels of FD) to the same shocks, which highlights the importance of FD independently of its correlation with shocks.

(Federal Reserve Bank of Kansas City RWP 19-06, Federal Reserve Bank of Richmond RWP 19-13)  

During the Great Recession, the collapse of consumption across the U.S. varied greatly but systematically with house-price declines. We find that financial distress among U.S. households amplified the sensitivity of consumption to house-price shocks. We uncover two essential facts: (1) the decline in house prices led to an increase in household financial distress prior to the decline in income during the recession, and (2) at the zip-code level, the prevalence of financial dis- tress prior to the recession was positively correlated with house-price declines at the onset of the recession. Using a rich-estimated-dynamic model to measure the financial distress channel, we find that these two facts amplify the aggregate drop in consumption by 7 percent and 45 percent 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. 

Bank Publications

(Federal Reserve Bank of Kansas City Economic Review Q1-2019).

(Federal Reserve Bank of Kansas City Economic Review Q3-2017).

The Shadow Labor Supply and Its Implications for the Unemployment Rate with Troy Davig
(Federal Reserve Bank of Kansas City Economic Review Q3-2013).

Works in Progress

Should I Stay or Should My Earnings Grow? How Market Incompleteness Shapes Inter-state Mobility and Inequality Earnings Profiles  with Andy Glover 

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