Michael Irwin

Published Papers:

The Impact of Unemployment Insurance and Unsecured Credit on Business Cycles

Journal of Political Economy: Macroeconomics, 2025, 3:2, 199-240

[Published Version] [Online Appendix]

Abstract: How does unsecured consumer credit impact the effectiveness of unemployment insurance (UI) in insuring households against idiosyncratic and aggregate risk over the business cycle?  The answer depends on whether credit and UI act as complementary or substitutable form of consumption insurance for households.  Using a real business cycle model with frictional labor markets and defaultable debt, I find that unsecured credit amplifies the welfare gains of a policy that extends the duration of UI during recessions.  UI extensions mitigate the rise in the default-risk premium of unsecured credit during recessions, which allows households to better smooth consumption over the business cycle.

Working Papers:

Mortgage Interest Rate Risk and the Propagation of Shocks, with Matias Vieyra 

Abstract: This paper studies how the mortgage market structure affects the propagation of aggregate shocks through the economy. Variable rate mortgages (VRMs) pass interest rate change directly to households, creating cash-flow effects that influence consumption. Fixed rate mortgages (FRMs) shield households from these changes but expose financial intermediaries (FIs) to interest rate risk. To quantify the importance of these two channels, we develop an incomplete-markets heterogeneous-agent model. We find that the aggregate impact of the mortgage market structure is non-monotonic: FRMs mitigate supply-driven recessions but amplify demand-driven ones. Furthermore, interest rate risk borne by FIs under FRMs is significant and generates fluctuations in profitability that partially offset the muted cash-flow effect for households.

Stimulus Effects of Student Debt Relief Policies, with Heejeong Kim 

The Impact of Bankruptcy Reform on Education and Student Loans, with Heejeong Kim 

A Method of Overlapping Endogenous Grids to Solve Problems with Non-Concavities

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