Jose Mustre-del-Rio's Homepage

Academic Publications

The Effects of Macroeconomic Shocks: Household Financial Distress Matters with Kartik B. Athreya, Ryan Mather, and Juan M. Sánchez  (Forthcoming, Review of Financial Studies)

When a macroeconomic shock arrives, variation in household balance sheet health (captured by the presence of financial distress, or “FD”), leads to differential access to credit, and hence a distribution of consumption responses. As we document, though, over the past two recessions, households in prior FD also experienced macroeconomic shocks more intensely than others, leading to a distribution of shock severity. Quantifying the importance of each dimension of heterogeneity (FD or shock severity) for consumption requires a structural model. We find that heterogeneity in FD matters more than dispersion in shock severity for shaping the responses of individual and aggregate consumption to any shock.

Search with Wage Posting under Sticky Prices  with Andrew Foerster  (Journal of Money, Credit & Banking, Vol. 54, Issue 2-3, March-April 2022)

This paper examines the implications of interacting pricing frictions, labor market frictions, and consumption risk by comparing variants of a New Keynesian model. The model variants make alternative assumptions about whether hiring and pricing decisions occur within the same firm or across different firms, and whether workers pool income. Nonetheless, each model implies the same contract is offered to workers, making model comparisons transparent. The economys response to changes in unemployment benefits or persistently below-target inflation depends on whether hiring and pricing decisions are integrated. Meanwhile, the dynamics following technology or monetary shocks are shaped both by firm- and worker-level assumptions.

The Persistence of Financial Distress with Kartik B. Athreya and Juan M. Sánchez  (Review of Financial Studies, Vol. 32, No. 10, October 2019)

Using proprietary panel data, we show that many US consumers experience financial distress (35% when distress is defined by having debt in severe delinquency, e.g.) at some point in their lives. However, most distress events are concentrated among a much smaller proportion of consumers in persistent trouble: fewer than 10% of borrowers account for half of all distress events. These facts can be largely accounted for in a straightforward extension of a workhorse model of unsecured debt with informal default that accommodates a simple form of heterogeneity in time preference.

Job Duration Over the Cycle  (Journal of Money, Credit & Banking, Vol. 51, No. 6, September 2019)

Evidence from the National Longitudinal Survey of Youth (NLSY) suggests that the cyclicality of job duration depends on the worker’s prior and future employment status. For example, among matches formed with previously nonemployed workers, those that end with the worker returning to nonemployment display procyclical duration. In contrast, matches that end because the worker switches to another job have countercyclical duration. Moreover, differences in starting wages do not account for these patterns.

Wealth and Labor Supply Heterogeneity (Review of Economic Dynamics, 18, 619-634, 2015)

This paper examines the importance of ex-ante heterogeneity for understanding the relationship between wealth and labor supply when markets are incomplete. An infinite horizon model is estimated where labor supply is indivisible and households are ex-ante heterogeneous in their labor disutility and market skills. The model replicates key features of the distribution of employment, wages, and wealth observed in the data. Importantly, it reverses the prediction that employment falls with wealth, a pervasive feature of models without ex-ante heterogeneity. A byproduct of the model's empirical performance is that it implies labor supply responses to unanticipated wage changes (e.g. Frisch elasticities) that are a half to two-thirds of those recovered from models with only ex-post heterogeneity.

Working Papers

Household Financial Distress and Macroeconomic Risk with with Kartik B. Athreya, Ryan Mather, and Juan M. Sánchez 

(Federal Reserve Bank of Kansas City RWP 20-13, Federal Reserve Bank of Richmond RWP 20-12 , Federal Reserve Bank of St Louis RWP 2019-025C)  

This paper investigates how, and how much, household financial distress (FD), arising from allowing debts to go unpaid, matters for the aggregate and cross-sectional con- sumption responses to macroeconomic risk. Through a battery of structural models, we show that FD can affect consumption responses through three channels: (1) as another margin of adjustment to shocks (direct channel); (2) because its persistence implies a significant degree of preference heterogeneity (indirect channel); and (3) because it can exacerbate macroeconomic risks whenever it is more severe in the hardest-hit regions, as evinced by the last two recessions (correlation channel). We find that all channels shape cross-sectional differences in the response of consumption to shocks. However, only the direct and indirect channels matter in the aggregate.

Financial Frictions and Occupational Mobility with William B. Hawkins 

(Federal Reserve Bank of Kansas City RWP 12-06)  R&R American Economic Journal: Macroeconomics.

We study the effects of market incompleteness on occupational mobility. Under incomplete markets, low-asset workers remain in low- productivity occupations even when the expected value of switching is positive. In a calibrated model, completing markets against wage risk improves welfare by up to 2.5 percent of lifetime consumption, in part because workers move into better occupations, but also thanks to improved consumption smoothing. We also investigate policies affecting mobility. Subsidizing retraining with additional taxes increases mobility away from low-productivity occupations and is welfare improving. In contrast, an equivalent tax increase redistributed in lump-sum fashion decreases mobility and barely changes welfare. 

Works in Progress

Should I Stay or Should My Earnings Grow? How Market Incompleteness Shapes Inter-state Mobility and Inequality Earnings Profiles  with Andy Glover 

Micro-founding Preference Shocks in DSGE Models with  Jonathan L. Willis

Heterogeneity in U.S. Labor Market Flows with Didem Tüzemen and Jonathan L. Willis

The Aggregate Implications of Labor Supply Near Retirement  with William Peterman     

Downward Nominal Rigid Wages, Inflation, and Unemployment with Andrew Foerster

Bank Publications

Economic Review

What Happens When Minimum Wages Rise? It Depends On Monetary Policy with Andy Glover 

(Federal Reserve Bank of Kansas City Economic Review Q3-2021).

What Explains Lifetime Earnings Differences across Individuals? with Emily Pollard

(Federal Reserve Bank of Kansas City Economic Review Q1-2019).

Dissecting Wage Dispersion with San Cannon

(Federal Reserve Bank of Kansas City Economic Review Q3-2017).

The Shadow Labor Supply and Its Implications for the Unemployment Rate with Troy Davig

(Federal Reserve Bank of Kansas City Economic Review Q3-2013).

Economic Bulletin

The Evolving Relationship between COVID-19 and Financial Distress with Kartik Athreya, Juan M. Sánchez, and Olivia Wilkinson

As Manufacturing Weakens, Consumers Pull Back with Emily Pollard

Nominal Wage Rigidities and the Future Path of Wage Growth with Emily Pollard

Flowing into Employment: Implications for the Participation Rate with Michael Redmond and William Xu

Confident about Quitting: Job Leavers and Labor Market Optimism with William Xu

Following the Leaders: Wage Growth of Job Switchers 

The Wage Cycle and Shadow Labor Supply with Troy Davig

The Shadow Labor Supply and Its Implications for the Unemployment Rate with Troy Davig

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RShocks

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Super Cool Computational Stuff

Solving the Bewley-Huggett-Aiyagari-Imrohoroglu model with value function iteration on a GPU (slides) (codes)  (please cite as: Mustre-del-Rio, Jose. 2015. “Solving Heterogeneous Agent Models with GPUs,” presentation at the Economic Research in High Performance Computing Environments Workshop, October 21, 2015, hosted by the Federal Reserve Bank of Kansas City's Center for the Advancement of Data and Research in Economics)

Disclaimer: The views expressed in this website are solely mine and do not represent the views of the Federal Reserve Bank of Kansas City of the Federal Reserve System.