Research
Working Papers
This paper investigates what information households use when they form expectations. We use daily data from the Gallup Daily Tracking Poll (2008-17) and Michigan Survey of Consumers (1980-2019) to study which macroeconomic announcements cause households to adjust their expectations. We build a model to isolate the unanticipated component of macroeconomic announcements and generate two different shock series - one assuming households are sophisticated, and one assuming households are naive. We document four primary results. First, we show that information about the labor market is an important determinant of not only households' subjective expectations about the economy, but also their inflation expectations. Second, we find that even in episodes when unemployment is decreasing and inflation is increasing, shocks to unemployment account for significant adjustments in households' subjective expectations about the economy. Third, most changes in inflation expectations are driven by shocks to unemployment. Inflation expectations may or may not respond to shocks to CPI, but they almost always respond to shocks to unemployment. Fourth, during negative supply and demand shocks, which are traditionally associated with recessions, it is unemployment that drives household expectations.
Work in Progress
The savings rate in the Indian economy has declined sharply since 2007 and approached a low of 29% of GDP in 2020. In this paper, we take a closer look at the historical evolution of aggregate savings in India, as well as its different components. We use a simple framework that seeks to explain the time variation in savings over the sample period. We find that increased prosperity more than explains the decline in savings of Indian households, while the decline in old age dependency was a major offset. Our baseline forecast implies a roughly 2 percentage point decline in household savings as a fraction of GDP over the next five years. We build some medium term scenarios to understand the trade-offs going forward.
Labor Force Participation in the 21st Century
The labor force participation rate in the United States has exhibited a sharp drop after the 2008 recession. Using the Current Population Survey, this paper first disentangles the trends in the participation rate along various demographic groups using shift-share analysis. Next, using time series, cross-section and individual variation, it examines the determinants of an individual's participation decision. Finally, it concludes with a discussion of the plausibility of various theories explaining the decline in participation from a labor supply lens. We find that the decrease in labor force participation seems to be voluntary, suggesting that it isn't driven by demand side factors.
In developing countries, weak enforcement of labor and tax regulations creates an opportunity for employers to collude with employees and manipulate the unemployment insurance system. In particular, workers who are eligible for benefits have an incentive to agree with their employers to transition into informality and share the proceeds from unemployment checks. We study the importance of this mechanism for the design of optimal unemployment insurance policies in a quantitative Diamond-Mortensen-Pissarides model calibrated with Brazilian data.