Christopher L. House

Valuing lost home production of dual earner couples

Using a life-cycle model in which women divide their time between home and market work, we establish a link between retirement wealth and the value of forgone home production. We use data from the Health and Retirement Study to estimate the models parameters and adjust the growth rate of GDP to reflect reductions in non-market output. We find that the value of forgone home production is modest - about 25 percent of womens measured earnings.

Adverse Selection and the Accelerator

This paper reexamines the relationship between financial market imperfections and economic instability. I present a model in which financial accelerator effects come from adverse selection in credit markets. Unlike other models of the financial accelerator, the model I present has the potential to stabilize the economy rather than destabilize it. The stabilizing forces in the dynamic model are closely related to forces that cause overinvestment in static models. Consequently, the stabilizing properties of the model are not specific to adverse selection but rather are present in any environment in which credit market distortions cause overinvestment. When investment projects are equity financed, or when contracts are written optimally, the only equilibria that emerge are stabilizer equilibria. Thus, stabilizing outcomes are more robust in this model. Finally, the empirical distinction between accelerator equilibria and stabilizer equilibria is subtle. Many statistics used to test for financial accelerators are observationally equivalent in stabilizer equilibria.

Greek Budget Realities: No Easy Options

ABSTRACT:This paper uses a quantitative dynamic open economy macroeconomic model to examine alternative strategies that the Greek government could implement to increase its primary balance on a flow basis by 1 percent of GDP, representing roughly one quarter of Greece’s total annual liability. We examine the impact of increases in distortionary taxes and reductions in government expenditures on the macroeconomy in both the short and long run. The necessary fiscal adjustments are large and entail substantial macroeconomic costs. These costs are even greater when one takes into account realistic elasticities of the tax base and the fact that Greece is a small open economy. Delaying fiscal adjustment could yield short-term benefits, but ultimately such delays come at a high price unless Greece’s creditors are willing to provide additional finance at below-market rates. The basic framework holds the growth rate of the Greek economy fixed. Naturally, fiscal adjustments become less painful under a scenario in which the Greek economy returns to a positive growth path. Whether structural reforms or other policies can generate such growth remains an open question.

Home Production by Dual Earner Couples and Consumption During Retirement

To study the role of home production in life-cycle behavior, this paper creates a theoretical model in which both spouses in a couple allocate their time between market and home work. It then derives a pair of regression equations for estimating the parameters of the model, and it carries out the estimation using panel data on household net worth and lifetime earnings from the Health and Retirement Study and pseudo-panel data on household consumption expenditures from the Consumer Expenditure Survey. We estimate that the value of forgone home production is roughly 10-15 cents for every dollar that a married man earns, but 30-35 cents per dollar of married women’s market earnings. Our findings imply male labor supply elasticities that are very near zero and female elasticities in the range of 0.50. Our model predicts a substantial decline in measured consumption expenditure at a household’s retirement, and it shows that Euler-equation models of consumption behavior should include terms reflecting home production.