Nikolai L. Roussanov

Houses as ATMs? Mortgage Refinancing and Macroeconomic Uncertainty

We estimate a structural model of household liquidity management in the presence of long-term mortgages. Households face counter-cyclical idiosyncratic labor income uncertainty and borrowing constraints, which affect optimal choices of leverage, precautionary saving in liquid assets and illiquid home equity, debt repayment, mortgage refinancing, and default. Taking the observed historical path of house prices, aggregate income, and interest rates as given, the model quantitatively accounts for the run-up in household debt and consumption boom prior to the financial crisis, their subsequent collapse, and mild recovery following the Great Recession, especially among the most constrained households.

Chapter 61 Intertemporal Substitution and Risk Aversion

Abstract We study structural models of stochastic discount factors and explore alternative methods of estimating such models using data on macroeconomic risk and asset returns. Particular attention is devoted to recursive utility models in which risk aversion can be modified without altering intertemporal substitution. We characterize the impact of changing the intertemporal substitution and risk aversion parameters on equilibrium short-run and long-run risk prices and on equilibrium wealth.

Fracking, Drilling, and Asset Pricing: Estimating the Economic Benefits of the Shale Revolution

We quantify the effect of a significant technological innovation, shale oil development, on asset prices. Using stock returns on major news announcement days allows us to link aggregate stock price fluctuations to shale technology innovations. We exploit cross-sectional variation in industry portfolio returns on days of major shale oil-related news announcements to construct a shale mimicking portfolio. This portfolio can explain a significant amount of variation in aggregate stock market returns, but only during the time period of shale oil development, which begins in 2012. Our estimates imply that

Short-Run Pain, Long-Run Gain? Recessions and Technological Transformation

3.5 trillion of the increase in aggregate U.S. equity market capitalization since 2012 can be explained by this mimicking portfolio. Similar portfolios based on major monetary policy announcements do not explain the positive market returns over this period. We also show that exposure to shale oil technology has significant explanatory power for the cross-section of employment growth rates of U.S. industries over this period.

Common Risk Factors in Currency Markets

Recent empirical evidence suggests that skill-biased technological change that shifts labor demand towards non-routine jobs has accelerated during the Great Recession. We analyze the interaction between the gradual process of transition towards a skill intensive technology and business cycles in a standard neoclassical growth framework. In the model, periods of depressed economic activity are used by firms to deeply reorganize production and by routine workers to acquire new skills due to low opportunity costs. As a result, additional resources are diverted from production, amplifying the effect of a negative TFP shock. At the same time, recessions speed up technological transformation. For a reasonable parametrization, the model is able to match both the long-run trend in the routine employment share and the dramatic impact of the Great Recession on such jobs.