I am a PhD Candidate at the Institute for International Economic Studies (IIES) at Stockholm University. My research is mainly focused on heterogeneous-agent macroeconomics, household finance and wealth inequality.

CV: Link | Email: richard.foltyn@iies.su.se

I will be available for job market interviews at the EEA meeting in Rotterdam and the ASSA meeting in San Diego.

Working papers

Recent evidence suggests that lifetime experiences play an important role in determining households' investment choices. I incorporate these findings into an otherwise standard life-cycle model and examine to what extent they can help resolve long-standing puzzles in the literature regarding stock market participation and the fraction of financial wealth invested in risky assets. Agents putting a higher weight on recent observations when learning about returns create a positive correlation between a household's position in the wealth distribution and its optimism about future returns. The wealthy consequently increase their investment in risky assets, while participation is limited among poor households. I find that in a reasonably calibrated quantitative model, the mechanism moves households' portfolio composition closer to the data. However, the presence of additional heterogeneity due to aging and stochastic earnings attenuates the link between wealth and beliefs, thus dampening the model's ability to fully match the empirically observed cross-sectional portfolio composition.

There is a substantial heterogeneity in life expectancy in the population. However, an individual's consumption-savings decision is not necessarily guided by the objective statistical life expectancy, but rather by the individual's beliefs about survival. In this paper, we document a systematic bias in survival beliefs: individuals with a low survival probability relative to their peers underestimate their life expectancies, while individuals with a high survival probability overestimate theirs. To gauge the effect of heterogeneity in life expectancy (objective and subjective) on savings rates and ultimately wealth inequality, we introduce shocks to survival beliefs into an otherwise standard overlapping-generations model. We show that with a bequest motive calibrated to match asset decumulation in old age, such a model exhibits a counter-factual savings behavior as individuals increase their savings when their life expectancy drops. Nevertheless, the overall wealth inequality in the economy is virtually unaffected by heterogeneity in survival beliefs, contrary to previous literature which finds stronger effects of heterogeneous discount factors.

In this paper, we provide improved estimates for age-dependent health transitions and survival probabilities for different subsamples of the US population. The estimated yearly transition matrices can be used in any life-cycle model where health and survival dynamics is of interest. The results show substantial heterogeneity in life expectancy in the population. For a 70-year-old man in excellent health, the probability of reaching his 80th birthday is around 75%, while the corresponding probability for a man in poor health is just below 40%. There is also substantial inequality in life expectancy between different educational groups. In the group with less than a high school degree, the life expectancy at the age of 50 is 75 years, while the average for those with some college education or more is 80 years. This difference is due to two factors. First, at the age of 50, overall health is worse in the group with lower education. Second, even conditional on health status, the health dynamics and survival probabilities for this group are worse also from the age of 50 and onwards. We estimate that the difference in life expectancy across education groups mainly stems from the worse health and survival dynamics after the age of 50.

Work in progress

"On the Redistributive Effects of Government Bailouts in the Mortgage Market" (with Dirk Krueger and Kurt Mitman)

In this paper we investigate positive and normative implications of bailout guarantees for mortgage lenders. The implicit guarantee for debt issued by Fannie Mae and Freddie Mac in the US prior to 2008 led to lower borrowing costs for financial intermediaries in the mortgage market, which were passed on to households taking out mortgages. This in turn might have affected the distribution of real estate ownership and leverage among US households. On the other hand, the bailouts in 2008 required injections of $187bn of taxpayer money into these companies. The paper attempts to quantify this trade-off of lower borrowing rates and higher taxes to fund bailouts in a model featuring heterogeneous households and aggregate uncertainty in the form of (severe) recessions, identifying beneficiaries and losers of such a policy as well as overall welfare effects.

"Self-selection into Retirement and Social Security Reform" (with Jonna Olsson)

We investigate optimal retirement behavior in a life-cycle model of agents who are heterogeneous with respect to age, assets, productivity, health and social security entitlements. Our model replicates stylized facts observed in the US, such as the delayed retirement of high earners. Furthermore, unlike in earlier work, we carefully model health transitions estimated from a panel of the elderly which allows us to quantify the effects of (expected) longevity on retirement decisions. We use our model to evaluate reforms to the US Social Security system, such as changes to the full retirement age or the earnings test for early retirees, and the heterogeneous effects on high vs low earners. Preliminary results indicate that the earnings test as currently implemented in the US is a major factor in delaying retirement for high earners.

Photo credit: Sheep along the Stubaier Höhenweg in the Austrian Alps. Photo by Simona Foltyn.