We provide evidence of the stock market consumption wealth effect by using a local labor market analysis. An increase in local stock wealth driven by aggregate stock prices increases local employment and payroll in nontradable industries and in total, with no effect on employment in tradable industries. In a model of geographic heterogeneity in stock wealth, these responses imply an MPC of 3.2 cents per year and that a 20 percent increase in stock valuations, unless countered by monetary policy, increases the aggregate labor bill by at least 1.7 percent and aggregate hours by at least 0.7 percent two years after the shock.
Helland, Leif; Iachan, Felipe S., Juelsrud, Ragnar Enger & Nenov, Plamen (2021)
Information Quality and Regime Change: Evidence from the Lab
We experimentally test the effects of information quality in a global game of regime change. The game features a payoff structure such that more dispersed private information induces agents to attack more often and reduces regime stability in the Bayesian Nash Equilibrium. We show that subjects in the lab do not play as predicted by equilibrium theory. Instead, more dispersed information makes subjects more cautious, increasing regime stability. We show that this finding is consistent with a modified global game model in which agents engage in level- thinking. In the level- model, information quality affects agents’ actions through a novel channel, that enables a strategic attenuation effect. As information quality worsens, strategic complementarities between different level- types weaken, generating a force that is capable of reversing the comparative statics from the equilibrium model.
Lyshol, Arne Fredrik; Nenov, Plamen & Wevelstad, Thea (2021)
We study whether unemployment duration dependence—the negative effect of a current unemployment spell on an individual's employment probability—varies with labor market experience. Using data from the National Longitudinal Survey of Youth and the Current Population Survey, we show that although there is negative duration dependence for experienced workers, it is mostly absent for new entrants to the labor force. This difference suggests that structural forces in addition to ex ante heterogeneity in job-finding probabilities and dynamic selection may drive unemployment duration dependence. Our findings are robust to the econometric model used and to a number of demographic controls and time trends, as well as individual fixed effects. We also discuss whether a number of theories of duration dependence can explain our empirical findings.
Iachan, Felipe S.; Nenov, Plamen & Simsek, Alp (2021)
Financial innovation in recent decades has expanded portfolio choice. We investigate how greater choice affects investors' savings and asset returns. We establish a choice channel by which greater portfolio choice increases investors' savings—by enabling them to earn the aggregate risk premium or take speculative positions. In equilibrium, portfolio customization (access to risky assets beyond the market portfolio) reduces the risk-free rate. Participation (access to the market portfolio) reduces the risk premium but typically increases the risk-free rate. Empirically, stock market participants in the United States save more than nonparticipants and have increasingly dispersed portfolio returns, consistent with the choice channel.
We study dividend payouts when banks face coordination-based rollover crises. Banks in the model can use dividends to both risk shift and signal their available liquidity to short-term lenders, thus, influencing the lenders’ actions. In the unique equilibrium both channels induce banks to pay higher dividends than in the absence of a rollover crisis. In our model banks exert an informational externality on other banks via the inferences and actions of lenders. Optimal dividend regulation that corrects this externality and promote financial stability includes a binding cap on dividends. We also discuss testable implications of our theory.
Chodorow-Reich, Gabriel; Nenov, Plamen & Simsek, Alp (2019)
Stock Market Wealth and the Real Economy: A Local Labor Market Approach
We provide evidence on the stock market consumption wealth effect by using a local labor
market analysis and regional heterogeneity in stock market wealth. An increase in local stock
wealth driven by aggregate stock prices increases local employment and payroll in nontradable
industries and in total, while having no effect on employment in tradable industries. In a model
with consumption wealth effects and geographic heterogeneity, these responses imply a marginal
propensity to consume out of a dollar of stock wealth of 2.8 cents per year. We also use the model
to quantify the aggregate effects of a stock market wealth shock when monetary policy is passive.
A 20% increase in stock valuations, unless countered by monetary policy, increases the aggregate
labor bill by at least 0.85% and aggregate hours by at least 0.28% two years after the shock.
Housing transactions by moving homeowners take two steps—buying a new house and selling the old one. This paper argues that the transaction sequence decisions of moving homeowners have important effects on the housing market. Moving homeowners prefer to buy first whenever there are more buyers than sellers in the market. However, this congests the buyer side of the market and increases the buyer–seller ratio, further strengthening the incentives of other moving owners to buy first. This endogenous strategic complementarity leads to multiple steady state equilibria and large fluctuations, which are broadly consistent with stylized facts about the housing cycle.
Nenov, Plamen; Larsen, Erling Røed & Sommervoll, Dag Einar (2016)
Thick-market effects, housing heterogeneity, and the determinants of transaction seasonality
This article uses cross-sectional variation in transaction seasonality and a search-theoretic framework to develop a test for thick-market effects from matching efficiency. The test relates the extent of transaction seasonality to the degree of horizontal housing heterogeneity. We find a strong positive association between measures of seasonality and housing heterogeneity using a transaction level dataset for Norway, which is consistent with the presence of thick-market effects. These results also show that the degree of horizontal heterogeneity of the housing stock is an important determinant of the extent of seasonality in a housing market.
Nenov, Plamen (2016)
Endogenous Leverage and Advantageous Selection in Credit Markets
I study asset price amplification in an asymmetric information model. Entrepreneurs issue debt to finance investments in a physical asset. They have private information about their success probabilities. For a given debt level, higher asset prices require entrepreneurs to invest more of their own funds. This makes bad entrepreneurs more reluctant to mimic good ones; as a result, good entrepreneurs increase their equilibrium leverage and invest more, and this amplifies the initial asset price increase. This model generates predictions about the credit market that are qualitatively consistent with existing evidence.
Nenov, Plamen (2015)
Regional Reallocation and Housing Markets in a Model of Frictional Migration
Migration frictions are important for understanding key features of gross migration and housing markets. This paper studies a multi-region equilibrium model with frictional migration. Idiosyncratic preference shocks, a mobility cost, and imperfectly directed migration lead to slow worker reallocation in response to changes in local conditions. This leads to a dependence of local house prices on the history of labor market shocks. The model accounts for the comovements of unemployment and rental and house prices with gross migration observed in a panel of U.S. cities. Structural estimation reveals a high mobility cost for unemployed workers and a low probability of directed migration. Both of these imply that regional reallocation has a limited importance for the aggregate labor market and that the e ects of housing markets on reallocation are small.
Iachan, Felipe S. & Nenov, Plamen (2015)
Information quality and crises in regime-change games
When crises potentially originate from coordination failures, does a deterioration in the quality of the information available to market participants contribute towards instability? We address this question in a general global game of regime change with a unique equilibrium and illustrate the implications in a debt rollover application. We show that a reduction in the quality of information increases the likelihood of regime change, thus reducing stability, when the net payo in the case of a successful attack is more sensitive to the fundamentals than the net payo in the case of status quo survival. We also discuss welfare implications.
Iachan, Felipe S.; Nenov, Plamen & Simsek, Alp (2015)
Dividend Tax News and the Elasticity of Intertemporal Substitution
[Lecture]. Event
Larsen, Erling Røed; Anundsen, André Kallåk, Sommervoll, Dag Einar & Nenov, Plamen (2023)
Pricing and incentives in the housing market, AREUEA National, Washington D.C: Westin, 2. juni 2023
[Conference Lecture]. Event
Larsen, Erling Røed; Nenov, Plamen, Lyshol, Arne & Anundsen, André Kallåk (2023)
Match Quality and House Price Dispersion: Evidence from Norwegian Housing Auctions, (med André Anundsen, Plamen Nenov og Arne Lyshol) (Røed Larsen presenterte), Western Ec.Ass. Int., San Diego, 5. juli 2023
