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NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Jack Favilukis

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Working Papers

February 2014Foreign Ownership of U.S. Safe Assets: Good or Bad?
with Sydney C. Ludvigson, Stijn Van Nieuwerburgh: w19917
The last 20 years have been marked by a sharp rise in international demand for U.S. reserve assets, or safe stores-of-value. What are the welfare consequences to U.S. households of these trends, or of a reversal? In a lifecycle model with aggregate and idiosyncratic risks, the young and oldest households may benefit substantially from such capital inflows, but middle-aged savers may suffer from greater exposure to systematic risk in equity and housing markets. Under the veil of ignorance, a newborn in the lowest wealth quantile is willing to forego 2.7% of lifetime consumption to avoid a large capital outflow.

Forthcoming: Foreign Ownership of U.S. Safe Assets: Good or Bad?, Jack Favilukis, Sydney C. Ludvigson, Stijn Van Nieuwerburgh. in Sovereign Debt and Financial Crisis, Kalemli-Ozcan, Reinhart, and Rogoff. 2014

January 2012International Capital Flows and House Prices: Theory and Evidence
with David Kohn, Sydney C. Ludvigson, Stijn Van Nieuwerburgh: w17751
The last fifteen years have been marked by a dramatic boom-bust cycle in real estate prices, accompanied by economically large fluctuations in international capital flows. We argue that changes in international capital flows played, at most, a small role in driving house price movements in this episode and that, instead, the key causal factor was a financial market liberalization and its subsequent reversal. Using observations on credit standards, capital flows, and interest rates, we find that a bank survey measure of credit supply, by itself, explains 53 percent of the quarterly variation in house price growth in the U.S. over the period 1992-2010, while it explains 66 percent over the period since 2000. By contrast, once we control for credit supply, various measures of capital flows, r...

Published: International Capital Flows and House Prices: Theory and Evidence, Jack Favilukis, David Kohn, Sydney C. Ludvigson, Stijn Van Nieuwerburgh. in Housing and the Financial Crisis, Glaeser and Sinai. 2013

June 2011An Estimation of Economic Models with Recursive Preferences
with Xiaohong Chen, Sydney C. Ludvigson: w17130
This paper presents estimates of key preference parameters of the Epstein and Zin (1989, 1991) and Weil (1989) (EZW) recursive utility model, evaluates the model's ability to fit asset return data relative to other asset pricing models, and investigates the implications of such estimates for the unobservable aggregate wealth return. Our empirical results indicate that the estimated relative risk aversion parameter ranges from 17-60, with higher values for aggregate consumption than for stockholder consumption, while the estimated elasticity of intertemporal substitution is above one. In addition, the estimated model-implied aggregate wealth return is found to be weakly correlated with the CRSP value-weighted stock market return, suggesting that the return to human wealth is negatively corr...

An Estimation of Recursive Preferences,” (with Jack Favilukis and Xiaohong Chen), in Quantitative Economics (forthcoming).

May 2010The Macroeconomic Effects of Housing Wealth, Housing Finance, and Limited Risk-Sharing in General Equilibrium
with Sydney C. Ludvigson, Stijn Van Nieuwerburgh: w15988
This paper studies the role of time-varying risk premia as a channel for generating and propagating fluctuations in housing markets, aggregate quantities, and consumption and wealth heterogeneity. We study a two-sector general equilibrium model of housing and non-housing production where heterogeneous households face limited opportunities to insure against aggregate and idiosyncratic risks. The model generates large variability in the national house price-rent ratio, both because it fluctuates endogenously with the state of the economy and because it rises in response to a relaxation of credit constraints and decline in housing transaction costs (financial market liberalization). These factors, together with a rise in foreign ownership of U.S. debt calibrated to match the actual increase o...

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