Research

Abstract: The U.S. stock market participation rate has risen substantially since the 1980s. This paper studies the macro-financial implications of such structural change in a production-based asset-pricing model with external habits, which make investors’ effective risk aversion time-varying and decreasing with consumption. In this setup, higher participation generates a fall in the risk-free rate and an increase in the equity premium, consistent with recent U.S. trends. These novel results stem from a decline in the average participant’s risk tolerance, due to the entry of lower-consumption households relative to incumbents. Micro-level evidence from the U.S. Consumer Expenditure Survey supports the main model mechanism.

Presented at: EEA 2024, Sailing the Macro Workshop 2023, AMSE-BdF Workshop 2023, T2M 2023, AMSE-IMéRA Conference 2022, RES 2022, Bank of Italy, University of Milan, AMSE, ASSET 2021, IFABS 2021, IYFS 2021, SNDE 2020, University of Copenhagen, WBS, Warwick Macro & International Workshop.

Abstract: The dynamics of consumption inequality is important to understand asset pricing and its connection with the macroeconomy. We document marked heterogeneity in the transmission of different aggregate shocks to the consumption (and income) of U.S. assetholders relative to that of non-assetholders. Unlike technology shocks, factor-share shocks that redistribute resources from labor to capital income generate strong procyclicality in relative consumption, and are relevant drivers of time-variation in expected stock returns. A limited participation model rationalizing these findings highlights that asset prices mostly reflect risk stemming from redistribution between different income sources, which however has limited influence on macroeconomic fluctuations.

Presented at: MMF 2024, CEPR and Liverpool Workshop in Macroeconomics 2024, T2M 2024, SED 2023, Université de Lausanne*, RES 2023, AMSE, ASSET 2022*, ICMAIF 2022, ADRES 2022, Macroeconomic Dynamics Workshop 2021*, King's Macroeconometrics Workshop 2021*, Sailing the Macro Workshop 2021, University of Pavia*, WBS, Warwick Macro & International Workshop. (*Presented by co-author)

Abstract: This paper studies how household heterogeneity affects the level and cyclical behavior of the optimal carbon tax in a real economy. We demonstrate that an equity-efficiency trade-off arises due to income inequality and heterogeneity in the marginal disutility of pollution. Two scenarios are analyzed: one with unrestricted income redistribution to mitigate inequality and another where redistribution is constrained to carbon tax revenues. Our findings reveal that household heterogeneity and redistribution policies significantly shape the level and cyclical behavior of the optimal carbon tax, decoupling it from the social cost of carbon. When the planner prioritizes redistribution towards poorer households, the optimal tax rate is lower than in the unconstrained scenario, and its fluctuations are amplified by countercyclical inequality.

Presented at: PSE Macro Days 2025*, Sailing the Macro Workshop 2025, EEA 2025, BSE Summer Forum 2025*, Banco Central de Paraguay*, Jumpstarting Europe Workshop (LUISS University), Sapienza Macro Workshop. (*Presented by co-author)