Life-Cycle Effects on Household Expenditures: A Latent-Variable Approach

Using data from the Spanish household budget survey, we investigate life- cycle effects on several product expenditures. A latent-variable model approach is adopted to evaluate the impact of income on expenditures, controlling for the number of members in the family. Two latent factors underlying repeated measures of monetary and non-monetary income are used as explanatory variables in the expenditure regression equations, thus avoiding possible bias associated to the measurement error in income. The proposed methodology also takes care of the case in which product expenditures exhibit a pattern of infrequent purchases. Multiple-group analysis is used to assess the variation of key parameters of the model across various household life-cycle typologies. The analysis discloses significant life-cycle effects on the mean levels of expenditures; it also detects significant life-cycle effects on the way expenditures are affected by income and family size. Asymptotic robust methods are used to account for possible non-normality of the data.

Predictable Life-Cycle Shocks, Income Risk and Consumption Inequality

Was the increase in income inequality in the US due to permanent shocks or merely to an increase in the variance of transitory shocks? The implications for consumption and welfare depend crucially on the answer to this question. We use CEX repeated cross-section data on consumption and income to decompose idiosyncratic changes in income into predictable life-cycle changes, transitory and permanent shocks and estimate the contribution of each to total inequality. Our model fits the joint evolution of consumption and income inequality well and delivers two main results. First, we find that permanent changes in income explain all of the increase in inequality in the 1980s and 90s. Second, we reconcile this finding with the fact that consumption inequality did not increase much over this period. Our results support the view that many permanent changes in income are predictable for consumers, even if they look unpredictable to the econometrician, consistent with models of heterogeneous income profiles.

The Labor Market Effects of Technology Shocks

We analyze the labor market effects of neutral and investment-specific technology shocks along the intensive margin (hours worked) and the extensive margin (unemployment). We characterize the dynamic response of unemployment in terms of the job separation and the job finding rate. Labor market adjustments occur along the extensive margin in response to neutral shocks, along the intensive margin in response to investment specific shocks. The job separation rate accounts for a major portion of the impact response of unemployment. Neutral shocks prompt a contemporaneous increase in unemployment because of a sharp rise in the separation rate. This is prolonged by a persistent fall in the job finding rate. Investment specific shocks rise employment and hours worked. Neutral shocks explain a substantial portion of the volatility of unemployment and output; investment specific shocks mainly explain hours worked volatility. This suggests that neutral progress is consistent with Schumpeterian creative destruction, while investment-specific progress operates as in a neoclassical growth model.

Transitory Economic Shocks and Civil Conflict

I examine whether civil conflict is triggered by transitory negative economic shocks. My approach follows Miguel, Satyanath, and Sergenti (2004) in using rainfall as an exogenous source of economic shocks in Sub-Saharan African countries. The main difference is that my empirical specifications take into account that rainfall shocks are transitory. Failure to do so may, for example, lead to the conclusion that civil conflict is more likely to break out following negative rainfall shocks when conflict is most probable following years with exceptionally high rainfall levels.

Lyfe-cycle effects on household expenditures: A latent-variable approach

Using data from the Spanish household budget survey, we investigate life-cycle effects on several product expenditures. A latent-variable model approach is adopted to evaluate the impact of income on expenditures, controlling for the number of members in the family. Two latent factors underlying repeated measures of monetary and non-monetary income are used as explanatory variables in the expenditure regression equations, thus avoiding possible bias associated to the measurement error in income. The proposed methodology also takes care of the case in which product expenditures exhibit a pattern of infrequent purchases. Multiple-group analysis is used to assess the variation of key parameters of the model across various household life-cycle typologies. The analysis discloses significant life-cycle effects on the mean levels of expenditures; it also detects significant life-cycle effects on the way expenditures are affected by income and family size. Asymptotic robust methods are used to account for possible non-normality of the data.

Civil conflict and human capital accumulation: The long-term effects of political violence in Perú

This paper provides empirical evidence of the persistent effect of exposure to political violence on humancapital accumulation. I exploit the variation in conflict location and birth cohorts to identify the longandshort-term effects of the civil war on educational attainment. Conditional on being exposed toviolence, the average person accumulates 0.31 less years of education as an adult. In the short-term,the effects are stronger than in the long-run; these results hold when comparing children within thesame household. Further, exposure to violence during early childhood leads to permanent losses. I alsoexplore the potential causal mechanisms.

The effects of employment uncertainty and wealth shocks on the labor supply and claiming behavior of older American workers

Unemployment rates in developed countries have recently reached levels not seenin a generation, and workers of all ages are facing increasing probabilities of losingtheir jobs and considerable losses in accumulated assets. These events likely increasethe reliance that most older workers will have on public social insurance programs,exactly at a time that public finances are suffering from a large drop in contributions.Our paper explicitly accounts for employment uncertainty and unexpectedwealth shocks, something that has been relatively overlooked in the literature, butthat has grown in importance in recent years. Using administrative and householdlevel data we empirically characterize a life-cycle model of retirement and claimingdecisions in terms of the employment, wage, health, and mortality uncertainty facedby individuals. Our benchmark model explains with great accuracy the strikinglyhigh proportion of individuals who claim benefits exactly at the Early RetirementAge, while still explaining the increased claiming hazard at the Normal RetirementAge. We also discuss some policy experiments and their interplay with employmentuncertainty. Additionally, we analyze the effects of negative wealth shocks on thelabor supply and claiming decisions of older Americans. Our results can explainwhy early claiming has remained very high in the last years even as the early retirementpenalties have increased substantially compared with previous periods, andwhy labor force participation has remained quite high for older workers even in themidst of the worse employment crisis in decades.

Estimating the effect of transitory economic shocks on civil conflict

This note tries to clarify some remaining issues in the debate on the effect of income shocks oncivil conflict. Section 1 discusses the discrepant findings on the effect of rainfall shocks oncivil conflict in Miguel and Satyanath (2010, 2011) and Ciccone (2011). Section 2 develops aninstrumental variables approach to estimate the effect of transitory (rainfall-driven) incomeshocks on civil conflict and contrasts the conclusions with those of Miguel, Satyanath, andSergenti (2004) and Miguel and Satyanath (2010, 2011). Throughout, the note uses the data ofMiguel, Satyanath, and Sergenti to focus on the methodological issues at the core of the debate(for results using the latest data see Ciccone, 2011).

Oil price shocks, income and democracy

We examine the effect of oil price fluctuations ondemocratic institutions over the 1960-2007 period. We also exploitthe very persistent response of income to oil price fluctuations tostudy the effect of persistent (oil price-driven) income shocks ondemocracy. Our results indicate that countries with greater net oilexports over GDP see improvements in democratic institutionsfollowing upturns in international oil prices. We estimate that a 1percentage point increase in per capita GDP growth due to apositive oil price shock increases the Polity democracy score byaround 0.2 percentage points on impact and by around 2 percentagepoints in the long run. The effect on the probability of a democratictransition is around 0.4 percentage points.

Identifying monetary policy shocks in Japan

It is sometimes argued that the central banks influence the private economy in the short run through controlling a specific component of high powered money, not its total amount. Using a structural VAR approach, this paper evaluates this claim empirically, in the context of the Japanese economy. I estimate a model based on the standard view that the central bank controls the total amount of high powered money, and another model based on the alternative view that it controls only a specific component. It is shown that the former yields much more sensible estimates than thelatter.

The ins and outs of unemployment: An analysis conditional on technology shocks

We analyze how unemployment, job finding and job separation rates reactto neutral and investment-specific technology shocks. Neutral shocks increaseunemployment and explain a substantial portion of it volatility; investment-specificshocks expand employment and hours worked and contribute to hoursworked volatility. Movements in the job separation rates are responsible for theimpact response of unemployment while job finding rates for movements alongits adjustment path. The evidence warns against using models with exogenousseparation rates and challenges the conventional way of modelling technologyshocks in search and sticky price models.

The impact of interest-rate subsidies on long-term household debt: Evidence from a large program

The responsiveness of long-term household debt to the interest rate is acrucial parameter for assessing the effectiveness of public policies aimedat promoting specific types of saving. This paper estimates the effect ofa reform of Credito Bonificado, a large program in Portugal that subsidizedmortgage interest rates, on long-term household debt. The reform establisheda ceiling in the price of the house that could be financed through theprogram, and provides plausibly exogenous variation in incentives. Usinga unique dataset of matched household survey data and administrative recordsof debt, we document a large decrease in the probability of signing a newloan after the removal of the subsidy.

Sources and propagation of international cycles: Common shocks or transmission?

This paper studies the generation and transmission of international cycles in a multi-country model with production and consumption interdependencies. Two sources of disturbance are considered and three channels of propagation are compared. In the short run the contemporaneous correlation of disturbances determines the main features of the transmission. In the medium run production interdependencies account for the transmission of technology shocks and consumption interdependencies account for the transmission of government shocks. Technology disturbances, which are mildly correlated across countries, are more successful than government expenditure disturbances in reproducing actual data. The model also accounts for the low cross country consumption correlations observed in the data.