We use sizable lottery prizes in Norwegian administrative panel data to explore how transitory income shocks are spent and saved over time, and how households’ marginal propensities to consume (MPCs) vary with household characteristics and shock size. We find that spending peaks in the year of winning and gradually reverts to normal within five years. Controlling for all items on households’ balance sheets and characteristics such as education and income, it is the amount won, age, and liquid assets that vary systematically with MPCs. Low-liquidity winners of the smallest prizes (around USD 1,500) are estimated to spend all within the year of winning. The corresponding estimate for high-liquidity winners of large prizes (USD 8,300-150,000) is slightly below one half. While conventional models will struggle to account for such high MPC levels, we show that a two-asset life-cycle model with a realistic earnings profile and a luxury bequest motive can account for both the time profile of consumption responses and their systematic co-variation with observables.
Fagereng, Andreas; Holm, Martin Blomhoff & Torstensen, Kjersti Næss (2021)
We provide a new estimate of household-level housing wealth in Norway between 1993 and 2015 using an ensemble machine learning method on housing transaction data. The new housing wealth measure is an improvement over existing data sources for two reasons. First, the model outperforms previously applied regression models in out-of-sample prediction precision. Second, we extend the sample of estimated housing wealth by including cooperative units, non-id apartments, and cabins.
We show that family background matters significantly for children’s accumulation of wealth and investor behavior as adults, even when removing the genetic connection between children and the parents raising them. The analysis is made possible by linking Korean-born children who were adopted at infancy by Norwegian parents to a population panel data set with detailed information on wealth and socio-economic characteristics. The mechanism by which these Korean- Norwegian adoptees were assigned to adoptive families is known and effectively random. This mechanism allows us to estimate the causal effects from an adoptee being raised in one type of family versus another.
Fagereng, Andreas; Guiso, Luigi, Malacrino, Davide & Pistaferri, Luigi (2020)
Heterogeneity and Persistence in Returns to Wealth
We provide a systematic analysis of the properties of individual returns to wealth using twelve years of population data from Norway’s administrative tax records. We document a number of novel results. First, individuals earn markedly different average returns on their net worth (a standard deviation of 22.1%) and on its components. Second, heterogeneity in returns does not arise merely from differences in the allocation of wealth between safe and risky assets: returns are heterogeneous even within narrow asset classes. Third, returns are positively correlated with wealth: moving from the 10th to the 90th percentile of the net worth distribution increases the return by 18 percentage points (and 10 percentage points if looking at net-of-tax returns). Fourth, individual wealth returns exhibit substantial persistence over time. We argue that while this persistence partly arises from stable differences in risk exposure and assets scale, it also reflects heterogeneity in sophistication and financial information, as well as entrepreneurial talent. Finally, wealth returns are correlated across generations. We discuss the implications of these findings for several strands of the wealth inequality debate.
Fagereng, Andreas; Guiso, Luigi & Pistaferri, Luigi (2018)
Portfolio Choices, Firm Shocks and Uninsurable Wage Risk
Assessing the importance of uninsurable wage risk for individual financial choices faces two challenges. First, the identification of the marginal effect requires a measure of at least one component of risk that cannot be diversified or avoided. Moreover, measures of uninsurable wage risk must vary over time to eliminate unobserved heterogeneity. Secondly, evaluating the economic significance of risk requires knowledge of the size of all the wage risk actually faced. Existing estimates are problematic because measures of wage risk fail to satisfy the “non-avoidability” requirement. This creates a downward bias, which is at the root of the small estimated effect of wage risk on portfolio choices. To tackle this problem we match panel data of workers and firms and use the variability in the profitability of the firm that is passed over to workers to obtain a measure of uninsurable risk. Using this measure to instrument total variability in individual earnings, we find that the marginal effect of uninsurable wage risk is much larger than estimates that ignore endogeneity. We bound the economic impact of risk and find that its overall effect is contained, not because its marginal effect is small but because its size is small. And the size of uninsurable wage risk is small because firms provide substantial wage insurance.
Fagereng, Andreas; Gottlieb, Charles & Guiso, Luigi (2017)
Asset Market Participation and Portfolio Choice over the Life-Cycle
Using error‐free data on life‐cycle portfolio allocations of a large sample of Norwegian households, we document a double adjustment as households age: a rebalancing of the portfolio composition away from stocks as they approach retirement and stock market exit after retirement. When structurally estimating an extended life‐cycle model, the parameter combination that best fits the data is one with a relatively large risk aversion, a small per‐period participation cost, and a yearly probability of a large stock market loss in line with the frequency of stock market crashes in Norway. This paper reexamines empirically the life‐cycle behavior of investors' portfolios, establishing novel features of the joint profiles of investors' participation in the stock market and the portfolio share invested in stocks. We estimate the parameters of a standard life‐cycle portfolio model with uninsurable labor income, extended to incorporate costly participation and a small probability of a stock market crash, and show that it can capture these features.
Fagereng, Andreas & Halvorsen, Elin (2017)
Imputing consumption from Norwegian income and wealth registry data
During the last decades Norwegian exporters have–despite various forms of exchange rate targeting–faced a rather volatile exchange rate which may have influenced their behaviour. Recently, the shift to inflation targeting and a freely floating exchange rate has brought about an even more volatile exchange rate. We examine the causal link between export performance and exchange rate volatility across different monetary policy regimes within the cointegrated Vector Autoregression (VAR) framework using the implied conditional variance from a Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model as a measure of volatility. Although treating the volatility measure as either a stationary or a nonstationary variable in the VAR, we are not able to find any evidence suggesting that export performance has been significantly affected by exchange rate uncertainty. We find, however, that volatility changes proxied by blip dummies related to the monetary policy change from a fixed to a managed floating exchange rate and the Asian financial crises during the 1990s enter significantly in a dynamic model for export growth–in which the level of relative prices and world market demand together with the level of exports constitute a significant cointegration relationship. A forecasting exercise on the dynamic model rejects the hypothesis that increased exchange rate volatility in the wake of inflation targeting in the monetary policy has had a significant impact on export performance.
Holm, Martin B.; Fagereng, Andreas, Natvik, Gisle James, Gouin-Bonenfant, Emilien, Gomez, Matthieu & Moll, Benjamin (2023)
Asset-Price Redistribution
[Academic lecture]. Seminar, Lund University.
Holm, Martin B.; Natvik, Gisle James, Fagereng, Andreas & Moll, Benjamin (2023)
Saving Behavior across the Wealth Distribution: The Importance of Capital Gains
[Academic lecture]. Workshop on “Unveiling Wealth and Income Inequalities”.
Harmenberg, Karl; Gulbrandsen, Magnus Andreas Haare, Fagereng, Andreas & Natvik, Gisle James (2022)
Macro shocks in a micro laboratory: evidence on spousal income insurance, spending, and spillovers
[Academic lecture]. European Economic Association.
Fagereng, Andreas; Gulbrandsen, Magnus Andreas Haare, Holm, Martin B. & Natvik, Gisle James (2022)
How Does Monetary Policy Affect Household Indebtedness?
[Academic lecture]. Bank of Canada.
Fagereng, Andreas; Gomez, Matthieu, Gouin-Bonenfant, Emilien, Holm, Martin B., Moll, Benjamin & Natvik, Gisle James (2022)
Asset-Price Redistribution
[Academic lecture]. Banque de France.
Fagereng, Andreas; Gomez, Matthieu, Gouin-Bonenfant, Emilien, Holm, Martin B., Moll, Benjamin & Natvik, Gisle James (2022)
Asset-Price Redistribution
[Academic lecture]. Workshop at Norges Bank.
Fagereng, Andreas; Gomez, Matthieu, Gouin-Bonenfant, Emilien, Holm, Martin B., Moll, Benjamin & Natvik, Gisle James (2022)
Asset-Price Redistribution
[Academic lecture]. Copenhagen University.
Fagereng, Andreas; Gomez, Matthieu, Gouin-Bonenfant, Emilien, Holm, Martin B., Moll, Benjamin & Natvik, Gisle James (2022)
Asset-Price Redistribution
[Academic lecture]. EEA-ESEM.
Fagereng, Andreas; Holm, Martin Blomhoff, Gulbrandsen, Magnus & Natvik, Gisle James (2021)
How Does Monetary Policy Affect Household Indebtedness?
[Article in business/trade/industry journal]. Working Paper, Norges Bank, 2021(5), s. 1- 24.
Holm, Martin Blomhoff; Fagereng, Andreas, Guiso, Luigi & Pistaferri, Luigi (2020)
K-returns to Education
[Article in business/trade/industry journal]. Centre for Economic Policy Research. Discussion papers
We exploit a school reform that increased the length of compulsory schooling in Norway in the 1960s to study the causal effect of formal general education on returns on wealth (k-returns). OLS estimates reveal a strong, positive and statistically significant correlation between education and returns on individual net worth. This effect disappears in IV regressions, implying that general education has no causal effect on individual performance in capital markets, whose heterogeneity largely reflects non-acquired ability. On the contrary, we find that education causes higher returns in the labor market (l-returns). We speculate about possible rationales for this important asymmetry.
Pistaferri, Luigi; Fagereng, Andreas & Guiso, Luigi (2020)
Assortative mating and Wealth Inequality
[Academic lecture]. Digital konferanse: "New was to measure consumption".
Rønning, Marte; Fagereng, Andreas & Mogstad, Magne (2019)
Why do wealthy parents have wealthy children?
[Academic lecture]. Seminar.
Fagereng, Andreas; Guiso, Luigi, Malacrino, Davide & Pistaferri, Luigi (2019)
Heterogeneity and Persistence in Returns to Wealth
[Article in business/trade/industry journal]. Discussion papers
We provide a systematic analysis of the properties of individual returns to wealth using twelve years of population data from Norway’s administrative tax records. We document a number of novel results. First, individuals earn markedly different average returns on their net worth (a standard deviation of 8.6%) and on its components. Second, heterogeneity in returns does not arise merely from differences in the allocation of wealth between safe and risky assets: returns are heterogeneous even within narrow asset classes. Third, returns are positively correlated with wealth: moving from the 10th to the 90th percentile of the net worth distribution increases the return by 18 percentage points (and 10 percentage points if looking at net-of-tax returns). Fourth, individual wealth returns exhibit substantial persistence over time. We argue that while this persistence partly arises from stable differences in risk exposure and assets scale, it also reflects heterogeneity in sophistication and financial information, as well as entrepreneurial talent. Finally, wealth returns are correlated across generations. We discuss the implications of these findings for several strands of the wealth inequality debate.
Fagereng, Andreas; Holm, Martin Blomhoff, Moll, Benjamin & Natvik, Gisle James (2019)
Saving Behavior Across the Wealth Distribution: The Importance of Capital Gains
[Report]. NBER Working paper.
Fagereng, Andreas; Holm, Martin Blomhoff, Moll, Benjamin & Natvik, Gisle James (2019)
Saving Behavior Across the Wealth Distribution
[Academic lecture]. Annual Congress of the European Economic Association.
Fagereng, Andreas; Holm, Martin Blomhoff, Moll, Benjamin & Natvik, Gisle James (2019)
Saving Behavior Across the Wealth Distribution: The Importance of Capital Gains
[Academic lecture]. Konferanse: New Consumption Data, Universitetet i København.
Fagereng, Andreas; Natvik, Gisle James, Holm, Martin Blomhoff & Moll, Benjamin (2019)
Saving Behavior Across the Wealth Distribution
[Academic lecture]. American Economic Association: Annual Meeting.
Fagereng, Andreas; Natvik, Gisle James, Holm, Martin Blomhoff & Moll, Benjamin (2019)
Saving Behavior Across the Wealth Distribution: The Importance of Capital Gains
[Academic lecture]. NBER Summer Institute, EF&G Research Meeting.
Fagereng, Andreas; Guiso, Luigi, Malacrino, Davide & Pistaferri, Luigi (2018)
Heterogeneity and Persistence in Returns to Wealth
[Report]. IMF.
Fagereng, Andreas; Holm, Martin Blomhoff & Natvik, Gisle James (2018)
MPC Heterogeneity and Household Balance Sheets
[Academic lecture]. Workshop on New Consumption Data.
Natvik, Gisle James; Holm, Martin Blomhoff & Fagereng, Andreas (2017)
MPC heterogeneity and household balance sheets
[Academic lecture]. Santa Clare University research seminar.
Holm, Martin Blomhoff; Natvik, Gisle James & Fagereng, Andreas (2017)
MPC heterogeneity and household balance sheets
[Academic lecture]. The New Macroeconomics of Aggregate Fluctuations and Stabilisation Policy.
Natvik, Gisle James; Holm, Martin Blomhoff & Fagereng, Andreas (2017)
MPC heterogeneity and household balance sheets
[Academic lecture]. CEPR Workshop on Household Finance, Spring 2017.
Holm, Martin Blomhoff; Fagereng, Andreas & Natvik, Gisle James (2017)
MPC Heterogeneity and Household Balance Sheets
[Academic lecture]. Annual Meeting of the European Economic Association.
Holm, Martin Blomhoff; Fagereng, Andreas & Natvik, Gisle James (2017)
MPC Heterogeneity and Household Balance Sheets
[Academic lecture]. Society of Economic Dynamics Annual Meeting.
Holm, Martin Blomhoff; Fagereng, Andreas & Natvik, Gisle James (2017)
MPC Heterogeneity and Household Balance Sheets
[Academic lecture]. NBER Summer Institute.
Holm, Martin Blomhoff; Fagereng, Andreas & Natvik, Gisle James (2016)
MPC Heterogeneity and Household Balance Sheets
[Academic lecture]. Annual Conference of the International Association of Applied Econometrics.
Holm, Martin Blomhoff; Natvik, Gisle James & Fagereng, Andreas (2016)
MPC Heterogeneity and Household Balance Sheets
[Academic lecture]. Econometric Society European Winter Meeting.