Abstract: This paper develops an agent-based model (ABM) to quantify the impact of COVID-19 on household debt and savings. To build a representative cross-section of households who vary by income, debt portfolios and consumption baskets, we merge data from the Survey of Household Spending (SHS) and the Survey of Financial Security (SFS). We construct paths for consumption and employment over the crisis, accounting for heterogeneous risk of unemployment across demographics, government transfers, and substitution between expenditure categories that vary in contact-intensity. Our model simulations yield a heterogeneous effect of COVID-19 across the income distribution. Low-income households face the highest risk of unemployment, but transfers provide generous income replacement. Middle-income job-losers see the fastest rise in debt as transfers only partially replace lost income. Most unplanned savings are accumulated by high-income households who face lower risk of unemployment and larger declines in hard-to-distance spending. We find the rise in savings could generate a brief jump of nearly 6% of monthly consumption.
Link to Canadian Journal of Economics. Link to Bank of Canada Staff Working Paper. (earlier version)
Additional Consumption Analysis Data Analysis can be found here.
Abstract: We use administrative data for Norway to estimate an incomplete-market life-cycle model of retired singles and couples with a bequest motive, health-dependent utility, and uncertain longevity and health. We allow the parameters of the bequest utility to differ between households with and without offspring. Our estimates imply a very strong utility of residual wealth (bequest motive), in line with the estimates by Lockwood (2020). The bequest motive accounts for approximately three-quarters of aggregate wealth at age 85. More surprisingly, we estimate similar utility of residual wealth for households with and without offspring. We interpret this as, prima facie, evidence that the utility of residual wealth represents forces beyond an altruistic bequest motive
Link to New Version, CEPR Discussion Paper, Bank of Canada Staff Working Paper; Institute of Fiscal Studies working paper.
We study founder's experience as a source of ex-ante firm heterogeneity. Using employer-employee-shareholder linked administrative data, we find that founders' prior experience - both entrepreneurial experience for serial entrepreneurs and employment experience for novice entrepreneurs - is strongly associated with larger initial firm size and greater subsequent growth potential. Motivated by these findings, we build a model of entrepreneurial choice in which heterogeneity in founder's work and entrepreneurial experience leads to ex-ante heterogeneity in firm productivity. We use the model to study the long-run implications of skill-biased entrepreneurship decline and the effects of entrepreneurship policies.
Abstract: The wealthy hold a large fraction of total wealth but to what extent do they stay wealthy over time and why? There is high mobility at the top of the distribution where around 30% of the top 1% leave the category in 2 years, and a quarter of the top 1\% lose more than a third of their wealth, using the longitudinal UK Wealth and Assets Survey. Entrepreneurs are an engine of social mobility more likely to rise to the top and to fall from it. I examine theoretical explanations for the right tail distribution of wealth versus the data. In estimation, heterogeneous returns to wealth including difference for entrepreneurs is necessary to generate sufficient mobility and inequality, simultaneously changing stocks of wealth and future saving through expected persistence in wealth returns, generating very large downwards mobility.
Link to latest paper (in progress and often incomplete!), earlier paper, slides for presentation
Abstract: The rich economic diversity of businesses and households has an impact on economy-wide fluctuations and, in turn, is shaped by these fluctuations. This view, which has emerged over the last decade, has strong implications for both the conduct of monetary policy and its transmission mechanism. Our thematic review focuses on key aspects of this new theory as well as its underlying assumptions. We place these insights in a Canadian context, using relevant micro and macroeconomic data.
Link to publication
Abstract: We assess how much the recent rate-hike cycle has and will affect mortgage borrowers' consumption through its impacts on mortgage payments. Our analysis provides insights into the effects of changes in monetary policy on the consumption of mortgage borrowers.
Link to publication