I use panel data from the Survey of Consumer Finances to study the recent U.S. housing bust in a quantitative lifecycle model. In the model, households face two types of idiosyncratic shocks: income shocks and moving shocks. The income shocks produce the large and long-lasting impact of unemployment on future earnings documented in recent empirical work. The moving shocks are estimated from survey data on reasons for moving to match the characteristics of marginal buyers. Movers are younger, have lower wealth and less secure jobs, making them more sensitive to unemployment and credit conditions. Moving shocks amplify the quantitative importance of labor and credit channels that explain the observed decline in house prices and rise in foreclosures. The Home Affordable Modification Program helped stabilize prices and reduce foreclosures at a relatively small cost, working mainly as insurance against bad shocks to the most vulnerable households.

This paper studies a labor search model with agents who are averse to ambiguity (Knightian uncertainty). Shocks to confidence about future productivity are modeled as changes in ambiguity. Using the Survey of Professional Forecasters data, I find that confidence shocks help explain the equity premium and the stock market volatility, including their term structure. Ambiguity amplifies the response of the economy to productivity shocks, helping the model produce more realistic dynamics of unemployment, vacancies, tightness, stock prices, and returns. Returns in the model are predictable with price-dividend ratios; both returns and dividends are predictable with unemployment, like in the data.  Two extensions consider shocks to bargaining power and to separation rate and find similar implications of ambiguity about these shocks. 

Why did the real interest rate decline and the equity premium increase over the last 30 years? This paper assesses the role of uncertainty and credit market frictions. We quantify a model with heterogeneous households using data on asset prices and macro aggregates, as well as on households' debt and equity positions. We find that compensation for both uncertainty and frictions is reflected in asset prices. Moreover, a secular increase in frictions is important to understand jointly the decline in real rate and the relative scarcity of debt. Modeling uncertainty as ambiguity allows for tractable characterization of asset premia and precautionary savings effects in steady state.

The Tax Cuts and Jobs Act of 2017 (TCJA) reduced the incentive for households to claim itemized deductions that subsidize homeownership and simultaneously lowered income tax rates. We use an equilibrium model to quantify the effects of the TCJA on house prices, homeownership, and welfare. The reform removes the tax subsidy to owner-occupied housing for most households, who now choose to claim the standard deduction. However, over-consumption of tax-subsidized housing by the remaining wealthy itemizers persists. Our results highlight the critical, yet surprisingly understudied, role of the standard deduction in determining the tax-favored status of owner-occupied housing, and through this channel, its effects on homeownership, consumption, and mortgage debt accumulation across the wealth and income distributions

To match the observed patterns of trade policy over the business cycle, I study a menu-auction model of trade policy in which financial frictions give rise to unemployment. Firms face idiosyncratic liquidity shocks that force some of them into bankruptcy. Tariffs raise profits providing liquidity to overcome the shocks. Both equilibrium and optimal tariffs are hump-shaped in the size of the shocks: if shocks are small, tariffs rise (as compared to the no-shock case) to save employment; if shocks are large, tariffs fall to sweep away inefficient firms. The optimal policy encourages substitution by helping less affected industries create more jobs for the unemployed from other industries. The response to a crisis depends on the political regime: as compared to democracies, autocracies give more protection to industries that generate more profits and are at higher risk. The results also hold in a two-country extension of the model.