A PDF version of my CV is here. If you are looking for my lecture notes on asset pricing, they are available in one book-length PDF.
I’ve worked off-and-on in the general area of political economy—understood as models in which policies are endogenously determined given a framework (like majority voting) for aggregating individual policy preferences—since some early papers with Greg Huffman; for example, my and Greg’s IER paper on the political economy of immigration and redistribution.
A current project—which is joint with Eric Young and Dan Carroll—applies some solution concepts from political theory, namely the uncovered set and the essential set, to examine implications for taxes on consumption, labor, and capital income (and associated transfers) in an Aiyagari-type model featuring rich heterogeneity in individuals’ income and wealth. We calibrate the model to US experience, and, strikingly, we find a unique majority-rule equilibrium (a Condorcet winner). In contrast to the data, the model outcome features minimal taxes on labor income and essentially no redistribution. We conduct some experiments to try and uncover the factors driving this outcome.
In a precursor to this paper, I considered similar issues in a model with much less agent heterogeneity (and simpler transitional dynamics). While the results in that paper were ultimately disappointing, one thing that did come out of it was a very stark example of the potential pitfalls for macroeconomists in applying probabilistic voting to multi-dimensional issue spaces. I think poli sci theorists understand this, but among macro folk it’s less well understood (if understood at all)—outcomes under probabilistic voting are quite fragile with respect to assumptions on the structure of candidate uncertainty about voter preferences. In fact, in the three-dimensional issue space of taxes on consumption, labor income and capital income, a simple shift from additive to multiplicative errors can produce equilibria that are very nearly orthogonal. That’s the message of this paper, whose intended audience is those macro-political-economy types who are apt to pull out an “off-the-shelf” probabilistic voting framework as an answer to multi-dimensionality.
macro asset pricing
A current project combines my interests in macro-type models of asset-pricing and alternative models of individual choice in the face of risk. In it, I combine disappointment aversion, as employed by Routledge and Zin (Journal of Finance, 2010) or Campanale, Castro and Clementi (RED, 2010) with rare disasters in the spirit of Rietz (JME, 1988), Barro (QJE,2006), Gourio (Finance Research Letters, 2008), Gabaix (AER, 2008) and others. When the model’s representative agent is endowed with an empirically plausible degree of disappointment aversion, a rare disaster model can produce moments of asset returns that match the data reasonably well, using disaster probabilities and disaster sizes much smaller than have been employed previously in the literature.
This is good news. Quantifying the disaster risk faced by any one country is inherently difficult with limited time series data. And, it is open to debate whether the disaster risk relevant to, say, US investors is well-approximated by the sizable risks found by Barro and co-authors in cross-country data. On the other hand, we have evidence—see Starmer (JEL, 2000), Camerer and Ho (JRU, 1994) or Choi et al. (AER,2007)—that individuals tend to over-weight bad or disappointing outcomes, relative to the outcomes’ weights under expected utility. Recognizing aversion to disappointment means that disaster risks need not be nearly as large as suggested by the cross-country evidence for a rare disaster model to produce average equity premia and risk-free rates that match the data.
I am currently extending the model to allow for time-varying disaster probabilities.
My recent papers in asset-pricing were jump-started by the experience of teaching a half-semester, second-year Ph.D. macro field course—focussed on asset-pricing—at SMU back in 2012; if you’re interested in the (book-length) notes for that class, they’re here.
- Time-additive representations of preferences when consumption grows without bound, Economics Letters 47 (1995), 317–325. PDF
- Balanced-growth-consistent recursive utility, Journal of Economic Dynamics & Control 20 (1996), 657–680. PDF
- Endogenous growth in multi-sector Ramsey models, International Economic Review 37 (1996), 403–421. PDF
- On the political economy of endogenous taxation and redistribution (joint with Gregory W. Huffman), Economics Letters 56 (1997), 223–227. PDF
- Risk preferences and the welfare cost of business cycles, Review of Economic Dynamics 1 (1998), 646–676. PDF
- Elastic capital supply and the effects of fiscal policy (joint with Mark A. Wynne), Economic Inquiry 36 (1998), 553–574. PDF
- The US productivity slowdown: A peak through the structural break window (joint with Baldev Raj and Dan Slottje), Economic Inquiry 37 (1999), 226–241. PDF
- Inequality, inflation and central bank independence (joint with Gregory W. Huffman and Mark A. Wynne), Canadian Journal of Economics 33 (2000), 271–287. PDF
- A note on the potential pitfalls in estimating a ‘wealth effect’ on consumption from aggregate data, Economics Letters 78 (2003), 437–441. PDF
- On the political economy of immigration and income redistribution (joint with Gregory W. Huffman), International Economic Review 45 (2004), 1129–1168. PDF
- Campbell and Cochrane meet Melino and Yang: Reverse engineering the surplus ratio in a Mehra-Prescott economy, North American Journal of Economics and Finance 40 (2017), 55–62. PDF
- Do payment systems matter? A new look (joint with Joe Haslag), Journal of Finance and Economics 9 (2018), 1–25. PDF
- Two measures of core inflation: A comparison (joint with Evan F. Koenig), Federal Reserve Bank of St. Louis Review, Fourth Quarter 2019, 245–258. PDF
- An exploration into the effects of dynamic economic stabilization (joint with Gregory W. Huffman), Chapter 1 in Business Cycles and Macroeconomic Stability: Should We Rebuild Built-in Stabilizers?, J.-O. Hairault, P.-Y. Henin and F. Portier, eds., Kluwer Academic Publishers (1997).
- Review of Fisher Black’s Exploring General Equilibrium, International Review of Economics and Finance 8 (1996).
working papers & work-in-progress
- The dynamics of immigration policy with wealth-heterogeneous immigrants (joint with Gregory W. Huffman), Federal Reserve Bank of Dallas Working Paper 0006 (2000).
- Trimmed mean PCE inflation, Federal Reserve Bank of Dallas Working Paper 0506 (2005). PDF
- Real business cycle dynamics under first-order risk aversion, Federal Reserve Bank of Dallas Working Paper 0704 (2007). PDF
- What do majority-voting politics say about redistributive taxation of consumption and factor income?, Federal Reserve Bank of Dallas Working Paper 0814 (2008). PDF
- Risk preferences, intertemporal substitution, and business cycle dynamics, unpublished manuscript (2012).
- Disastrous disappointments: Asset-pricing with disaster risk and disappointment aversion, Federal Reserve Bank of Dallas Working Paper 1309 (2013; revised 2015). PDF
- Almost orthogonal outcomes under probabilistic voting: A cautionary example, unpublished manuscript (2008; revised 2015). PDF
- Majority voting: A quantitative investigation (joint with Daniel R. Carroll and Eric R. Young), Federal Reserve Bank of Cleveland Working Paper 14-42 (2014; revised as “The politics of flat taxes”, 2017; forthcoming at Review of Economic Dynamics). PDF
- Mobility and engagement following the SARS-Cov-2 outbreak (joint with Tyler Atkinson, Christoffer Koch, Evan Koenig, Karel Mertens, and Kei-mu Yi), Federal Reserve Bank of Dallas Working Paper 20-14 (2020). PDF
a sort-of book
- Whenever I teach a Ph.D.-level course, I end up with a sort-of book-length set of lecture notes that I’ve distributed to my students. Here’s a copy of the notes for a mini (half-semester) course I taught on macro-asset-pricing at SMU in 2012 (comments are very much welcome): PDF