A Model of Temporary Search Market Equilibrium

No abstract available.

Death to the Log-Linearized Consumption Euler Equation! (And Very Poor Health to the Second-Order Approximation)

This paper shows that standard empirical methods for estimating log-linearized consumption Euler equations cannot successfully uncover structural parameters like the coefficient of relative risk aversion from a dataset of simulated consumers behaving exactly according to the standard model. Furthermore, consumption growth for simulated consumers is very highly statistically related to predictable income growth -- and thus standard 'excess sensitivity' tests would reject the hypothesis that consumers are behaving according to the standard model. Results are not much better for the second-order approximation to the Euler equation. The paper concludes that empirical estimation of consumption Euler equations should be abandoned, and discusses some alternative empirical strategies that are not subject to the problems of Euler equation estimation.

Why Do the Rich Save So Much?

This paper considers several alternative explanations for the fact that households with higher levels of lifetime income have higher lifetime saving rates (Dynan, Skinner, and Zeldes (1996); Lillard and Karoly (1997)). The paper argues that the saving behavior or the richest households cannot be explained by models in which the only purpose of wealth accumulation is to finance their own future consumption, or even consumption of heirs. The paper concludes that the simplest model that explains the relevant facts is one in which either consumers regard the accumulation of wealth as an end in itself, or unspent wealth yields a flow of services (such as power or social status) which have the same practical effect on behavior as if wealth were intrinsically desirable.

Comparison Utility in a Growth Model

This paper compares the dynamics of two general equilibrium models of endogenous growth in which agents have "comparison utility". In the "inward-looking" economy, individuals care about how their consumption in the current period compares to their own consumption in the past (one way to describe this is "habit-formation" in consumption). In the "outward-looking" economy, individuals care about how their own level of consumption compares with others' consumption. While steady state growth rates are identical in the two economies, transition paths differ. For example, consider the effect of negative shock to capital. In an endogenous growth model with standard preferences, there will be no effect on the saving rate or the growth rate of output. In both of the models that we consider, however, saving and growth will temporarily fall in response to the shock. The initial decline in saving and growth will be larger in the inward-looking case. However, since agents in the outward-looking case do not take into account the externality effect of their consumption, higher growth in this case will lead to lower utility than in the inward-looking case.

Unemployment Expectations, Jumping (S,s) Triggers, and Household Balance Sheets

This paper examines the relationship between household balance sheets, consumer purchases, and expectations. We find robust empirical relationships between balance sheet measures and spending, but we do find that unemployment expectations are robustly correlated with spending. We then construct a formal model of durables and nondurables consumption with an explicit role for unemployment and for household debt. We find that the model is capable of explaining several empirical regularities which are, at best, unexplained by standard models. Finally, we show that a loosening of liquidity constraints can produce a runup in debt similar to that experienced recently in the U.S., and that after such a liberalization consumer purchases show heightened sensitivity to labor income uncertainty, providing a potential rigorous interpretation of the widespread view that the buildup of debt in the 1980s may have played an important role in the weakness of consumption during and after the 1990 recession.

On the Decomposition and Characterization of Risk With a Continuum of Random Variables

We show that the main theorem in Al-Najjar's 1995 Econometrica paper is false. We provide additional references for the residual implications that are valid, but point our that these standard implications are incapable of bearing the interpretative weight that Al-Najjar places on them.

Non-Cooperative Games with Many Players

No abstract available.

On the Existence of Pure Strategy Equilibria in Games with a Continuum of Players

We present results on the existence of pure strategy Nash equilbria in nonatomic games. We also show by means of counterexamples that the stringent conditions on the cardinality of actions sets cannot be relaxed, and thus resolve questions which have remained open since Schmeidler's 1973 paper.

A Theory of Rigid Extremists and Flexible Moderates With An Empirical Application To The U.S. Congress

A theory is developed which predicts that people with extreme opinions are relatively rigid in that they are less inclined to modify their opinions. That extremists tend to be rigid and moderates tend to be flexible is found to hold for members of the U.S. Congress.