Working Papers

with Sylvain Catherine and Natasha Sarin

Red Rock Finance Conference Best Paper Award

Recent influential work finds large increases in inequality in the U.S., based on measures of wealth concentration that notably exclude the value of social insurance programs. This paper revisits this conclusion by incorporating Social Security retirement benefits into measures of wealth inequality. Wealth inequality has not increased in the last three decades when Social Security is accounted for. When discounted at the risk-free rate, real Social Security wealth increased substantially from $5.6 trillion in 1989 to just over $42.0 trillion in 2016. When we adjust for systematic risk coming from the covariance of Social Security returns with the market portfolio, this increase remains sizable, growing from over $4.6 trillion in 1989 to $34.0 trillion in 2016. Consequently, by 2016, Social Security wealth represented 57% of the wealth of the bottom 90% of the wealth distribution. Redistribution through programs like Social Security increases the progressivity of the economy, and it is important that our estimates of wealth concentration reflect this.

Presented At: Chicago Annual Household Finance Conference*, EconTwitter Conference*, NBER Summer Institute (CRIW)*, Red Rock Finance Conference*, CEPR European Conference on Household Finance*, Northern Finance Association*, NBER Public Finance*

Press: Marginal Revolution, Pro-Market, The Economist

*Denotes presentation by co-author

with James Paron and Jessica Wachter

Yields on sovereign debt have declined dramatically across the developed world over the last half-century. Standard explanations of this decline include a change in discount rates due to an aging population or increased demand for assets from abroad. We show that these explanations encounters difficulties when confronted with the full range of evidence across asset classes. We propose that this decline was due to a decline in inflation expectations/default risk on sovereign debt. We argue that this explanation has a better chance of capturing an important feature of the decline in interest rates: namely that it has spanned centuries. We incorporate this explanation into an otherwise standard model of asset prices, augmented with inventory storage. An effective lower bound implies the existence of such a storage technology; otherwise there are arbitrage opportunities within the model. Including storage in a production-based model allows us to match the reduction in investment and GDP growth observed over the last three decades.

Presented At: NBER Summer Institute (Capital Markets), SF Fed Conference on Macro and Monetary Policy (Scheduled)

Periods of democratization exhibit economically large spikes in risk premia. Using a panel data set covering 57 countries over 200 years, I show that during periods of democratization, the equity premium and corporate credit spreads are significantly elevated, despite little to no effect on aggregate consumption and dividends. Further, I use a quasi-natural experiment coming from a shift in Catholic church attitudes toward democracy and show that this change was associated with a large increase in average excess returns for majority Catholic and autocratic countries. Finally, I show that these results can be rationalized through a standard political economy model in which the wealthiest segments of society are negatively impacted by the consolidation of democracy. These results are key to understanding how political institutions and the distribution of wealth and political power influence asset returns.

Presented At: Econometric Society - European Winter Meeting, Econometric Society World Congress, European Finance Association (Poster Session)


Journal of Public Economics (September 2020)

with Sylvain Catherine and Natasha Sarin

More than a quarter of working-age households in the United States do not have sufficient savings to cover their expenditures after a month of unemployment. We explore proposals to alleviate financial distress arising from the COVID-19 pandemic.We show that giving workers early access to just 1% of their future Social Security benefits allows most households to maintain their current consumption for at least two months. Unlike other approaches (like early access to retirement accounts, stimulus relief checks, and expanded unemployment insurance), access to Social Security serves the needs of workers made vulnerable by the crisis, but does not increase the overall liabilities of the federal government or have distortionary effects on the labor market.

Press: MarketWatch, MarketWatchMarketWatch

Lightly-Refereed Publications

with Jonathan Berk and Jules van Binsbergen

2020, Journal of Portfolio Management

Special Issue on Fund Manager Selection

2016, FEDS Note

with Elizabeth Holmquist and Youngsuk Yook

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