Research

PUBLICATIONS:

Homeownership Rate, Housing Policies, and Co-Residence Decisions (2023), with N.Siassi and A. Ludwig , Macroeconomic Dynamics, 1-24

Homeownership rates differ widely across European countries. We document that part of this variation is driven by differences in the fraction of adults co-residing with their parents. Comparing Germany and Italy, we show that in contrast to homeownership rates per household, homeownership rates per individual are very similar during the first part of the life cycle. To understand these patterns, we build an overlapping-generations model where individuals face uninsurable income risk and make consumption-saving and housing tenure decisions. We embed an explicit intergenerational link between children and parents to capture the three-way trade-off between owning, renting, and co-residing. Calibrating the model to Germany we explore the role of income profiles, housing policies, and the taste for independence and show that a combination of these factors goes a long way in explaining the differential life-cycle patterns of living arrangements between the two countries 

Sustainability Gap of Public Debt: Importance of Interest Rates and a New Decomposition with Premia (2022), with E. Dönnebrink, Empirica, 49(4), 1009-1030

Sustainability gaps (S2 indicators) are frequently used in national and international reports to assess the sustainability of public finances. For instance, in the European Commission’s Debt Sustainability Monitor (DSM) the indicators are analyzed in comparisons across (policy) scenarios, countries and time. The report’s findings play a crucial role in the context of the Stability and Growth Pact and the European Semester. As a result, sustainability gaps have a significant indirect influence on policy decisions. In this paper, we analyze two non-transparent properties of these indicators. First, the response of these indicators to changes in the interest rate-growth (r-g) differential is not readily predictable in terms of both strength and direction. Second, in our examples for low values of r-g (in a range of 0.5%), highly uncertain projections for distant periods after 2070 explain about 80% of the indicators’ values. To address these problems, we develop a new decomposition that takes into account the notion of premia (Reis 2021) and hence allows for a more transparent discussion of the sustainability of public debt. 

Cognition, Optimism, and the Formation of Age-Dependent Survival Beliefs (2021),  with  M. Groneck, A. Ludwig, and A. Zimper, International Economic Review, 2(2), 887-918 

This paper investigates the roles psychological biases play in empirically estimated deviations between subjective survival beliefs (SSBs) and objective survival probabilities (OSPs). We model deviations between SSBs and OSPs through age-dependent inverse S-shaped probability weighting functions (PWFs), as documented in experimental prospect theory. Our estimates suggest that the implied measures for cognitive weakness, likelihood insensitivity, and those for motivational biases, relative pessimism, increase with age. We document that direct measures of cognitive weakness and motivational attitudes share these trends. Our regression analyses confirm that these factors play strong quantitative roles in the formation of subjective survival beliefs. In particular, cognitive weakness is an increasingly important contributor to the overestimation of survival chances in old age.

Dispositional Optimism (and Pessimism), Wealth, and Stock Market Participation (2020),  Journal of Economic Psychology, 81 (119)

In this paper I analyze the relationship between dispositional optimism (pessimism) and saving decisions. The key contribution of this paper is the use of direct psychometric measures of psychological dispositions as available in the Health and Retirement Study (HRS). The psychometric measures allow me to control for optimism and pessimism separately. Dispositional pessimism is shown to be significantly related to wealth holdings and stock market participation - optimism is not significantly related. A one standard deviation decrease in pessimism is associated with holding 64 thousand US-$ more overall wealth and an increase in the likelihood of holding stocks of 2.4%.