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Benchmark finance and macroeconomic models deliver conflicting estimates of the natural rate and bond risk premia. This natural rate puzzle applies not only in the U.S. but across many advanced economies. We estimate a unified no-arbitrage macro-finance model with long-run trend factors to obtain a market-implied natural rate r∗. Our monthly natural rate estimates span 10 advanced economies over most of the postwar period, expanding coverage far further than previous studies, and drawing on new primary and secondary sources for bond yields and curves. This model improves the explanatory power of yield and return regressions. Most variation in yields is due to the macro trends r∗ and π∗, and not bond risk premia. Our r∗ differs from other estimates, and is typically lower, intensifying concerns about secular stagnation and the effective lower-bound.

Technological progress in the form of automation spurs productivity, but disrupts labor markets through worker displacement and earnings reductions. I study the role of labor market institutions, and in particular unionization, in shaping the adoption of labor-replacing technology. Exploiting variation in unionization and employment decline among exposed workers across US commuting zones, I first document that unionization results in substantially earlier adoption, increasing the share of employment decline over the first decade of the transition by up to 20 percentage point. Second, unionization shifts the incidence of adjustment from incumbent, older to incoming, younger workers, resulting in an additional 4 percentage point decline in the share of young workers, and 24 percentage point decline in the ratio of young to old wages over the first decade. I then build a quantitative model that rationalizes the empirical findings through the interaction of unions and the adoption of labor-replacing technology. In the model, unions protect wages and employment of incumbent workers, resulting in less reallocation of older workers, and reduced wages and employment of incoming workers during the transition. Interestingly, firms endogenously respond through reduced hiring in anticipation of a technological transition to avoid future adjustment costs which allows the model to rationalize the documented earlier onset of employment decline, and provides a new perspective on the dynamic impact of employment protection. Using the model as a laboratory, I evaluate the effects of unionization on the pace of transitions, and quantify the resulting intergenerational conflict in terms of the consumption transfer from incoming to incumbent generations.

We build a quantitative theory of income growth, the increase in life expectancy in the last two centuries, and the emergence and expansion of a modern health sector in the 20th century. To do so, we develop a two-sector overlapping generations model with endogenous and directed technical change in which income growth, life expectancy, and technological progress in the health sector and the final goods sector, as well as the size of the health sector and the quality and price of the goods it produces are jointly deter- mined in general equilibrium. The model interprets the facts as three phases of a dynamic equilibrium in which households are initially poor and the quality-adjusted price of health goods is prohibitively high so that demand for health goods is zero, life is short and life expectancy stagnant. As income grows, fueled by technological progress, households start consuming basic health goods, life expectancy starts to rise, and directed technological progress eventually, with a delay of ca. 100 years, leads to the emergence and expansion of a modern health sector.

This paper introduces higher-order earnings risk consistent with recent empirical findings into a benchmark heterogeneous-agent macro model to examine its implication for the distribution of wealth. I find that higher-order earnings dynamics induce higher earnings inequality driven primarily by persistent earnings losses at the bottom. Poor households respond by strongly cutting consumption leading to more consumption and less wealth inequality which reinforces the known issue of generating the empirically observed wealth dispersion in this class of models. In addition to lower overall consumption, the higher-order earnings moments, particularly excess kurtosis, are passed through to consumption dynamics of the poor. Both effects combined mean that those households are willing to pay up to 1.7% of permanent consumption to avoid higher-order earnings risk. Moreover, the latter effect induces consumption dynamics of the poor to be predominantly driven by idiosyncratic earnings changes which significantly reduces the correlation between their consumption and aggregate output. Since wealthier households are not affected strongly the implications for the aggregate dynamics of the economy are negligible. Methodologically, I develop a new General Polynomial Chaos Expansion approach to solve for the aggregate dynamics of this class of models, and contrast its efficiency with previous methods.

Technological progress in the form of automation spurs productivity, but disrupts labor markets through worker displacement and earnings reductions. I study the role of labor market institutions, and in particular unionization, in shaping the adoption of labor-replacing technology. Exploiting variation in unionization and employment decline among exposed workers across US commuting zones, I first document that unionization results in substantially earlier adoption, increasing the share of employment decline over the first decade of the transition by up to 20 percentage point. Second, unionization shifts the incidence of adjustment from incumbent, older to incoming, younger workers, resulting in an additional 4 percentage point decline in the share of young workers, and 24 percentage point decline in the ratio of young to old wages over the first decade. I then build a quantitative model that rationalizes the empirical findings through the interaction of unions and the adoption of labor-replacing technology. In the model, unions protect wages and employment of incumbent workers, resulting in less reallocation of older workers, and reduced wages and employment of incoming workers during the transition. Interestingly, firms endogenously respond through reduced hiring in anticipation of a technological transition to avoid future adjustment costs which allows the model to rationalize the documented earlier onset of employment decline, and provides a new perspective on the dynamic impact of employment protection. Using the model as a laboratory, I evaluate the effects of unionization on the pace of transitions, and quantify the resulting intergenerational conflict in terms of the consumption transfer from incoming to incumbent generations.

Benchmark finance and macroeconomic models deliver conflicting estimates of the natural rate and bond risk premia. This natural rate puzzle applies not only in the U.S. but across many advanced economies. We estimate a unified no-arbitrage macro-finance model with long-run trend factors to obtain a market-implied natural rate r∗. Our monthly natural rate estimates span 10 advanced economies over most of the postwar period, expanding coverage far further than previous studies, and drawing on new primary and secondary sources for bond yields and curves. This model improves the explanatory power of yield and return regressions. Most variation in yields is due to the macro trends r∗ and π∗, and not bond risk premia. Our r∗ differs from other estimates, and is typically lower, intensifying concerns about secular stagnation and the effective lower-bound.

We build a quantitative theory of income growth, the increase in life expectancy in the last two centuries, and the emergence and expansion of a modern health sector in the 20th century. To do so, we develop a two-sector overlapping generations model with endogenous and directed technical change in which income growth, life expectancy, and technological progress in the health sector and the final goods sector, as well as the size of the health sector and the quality and price of the goods it produces are jointly deter- mined in general equilibrium. The model interprets the facts as three phases of a dynamic equilibrium in which households are initially poor and the quality-adjusted price of health goods is prohibitively high so that demand for health goods is zero, life is short and life expectancy stagnant. As income grows, fueled by technological progress, households start consuming basic health goods, life expectancy starts to rise, and directed technological progress eventually, with a delay of ca. 100 years, leads to the emergence and expansion of a modern health sector.

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This paper introduces higher-order earnings risk consistent with recent empirical findings into a benchmark heterogeneous-agent macro model to examine its implication for the distribution of wealth. I find that higher-order earnings dynamics induce higher earnings inequality driven primarily by persistent earnings losses at the bottom. Poor households respond by strongly cutting consumption leading to more consumption and less wealth inequality which reinforces the known issue of generating the empirically observed wealth dispersion in this class of models. In addition to lower overall consumption, the higher-order earnings moments, particularly excess kurtosis, are passed through to consumption dynamics of the poor. Both effects combined mean that those households are willing to pay up to 1.7% of permanent consumption to avoid higher-order earnings risk. Moreover, the latter effect induces consumption dynamics of the poor to be predominantly driven by idiosyncratic earnings changes which significantly reduces the correlation between their consumption and aggregate output. Since wealthier households are not affected strongly the implications for the aggregate dynamics of the economy are negligible. Methodologically, I develop a new General Polynomial Chaos Expansion approach to solve for the aggregate dynamics of this class of models, and contrast its efficiency with previous methods.