Working papers
Bounded Foresight Equilibrium in Large Dynamic Economies with
Heterogeneous Agents and Aggregate Shocks
(with Bar Light)
Large dynamic economies with heterogeneous agents and aggregate shocks are central to many important applications, yet their equilibrium analysis remains computationally challenging. This is because the standard solution approach, rational expectations equilibria require agents to predict the evolution of the full cross-sectional distribution of state variables, leading to an extreme curse of dimensionality. In this paper, we introduce a novel equilibrium concept, N-Bounded Foresight Equilibrium (N-BFE), and establish its existence under mild conditions. In N-BFE, agents optimize over an infinite horizon but form expectations about key economic variables only for the next N periods. Beyond this horizon, they assume that economic variables remain constant and use a predetermined continuation value. This equilibrium notion reduces computational complexity and draws a direct parallel to lookahead policies in reinforcement learning, where agents make near-term calculations while relying on approximate valuations beyond a computationally feasible horizon. At the same time, it lowers cognitive demands on agents while better aligning with the behavioral literature by incorporating time inconsistency and limited attention, all while preserving desired forward-looking behavior and ensuring that agents still respond to policy changes. Building on this framework, we conduct a numerical analysis of N-BFE in classical models from the heterogeneous agent macro literature and large dynamic competition models. Importantly, in N-BFE equilibria, forecast errors arise endogenously. We measure the foresight errors for different foresight horizons and show that foresight significantly influences the variation in endogenous equilibrium variables, distinguishing our findings from traditional risk aversion or precautionary savings channels. This variation arises from a feedback mechanism between individual decision-making and equilibrium variables, where increased foresight induces greater non-stationarity in agents’ decisions and, consequently, in economic variables.
Keeping in Place After the Storm — Emergency Assistance and Evictions
(with Ahmed Zoulati)
We offer evidence that federal emergency assistance (FEMA) in the days following natural disasters mitigate evictions in comparison to similar emergency scenarios where FEMA aid is not provided. We find an approximate 16.5% increase in overall evictions after hurricane natural disaster events that increases to 19.7% when excluding ZIP codes that receive FEMA rental assistance. Furthermore, we also show that FEMA aid acts as a liquidity buffer to other forms of emergency credit, specifically we find that both transactions volumes and defaults decrease during hurricane events in locations that do receive FEMA aid. This effect largely reverses in areas that do not receive FEMA aid, where the magnitude of transaction volumes drop by less and default rates remain similar relative to the baseline. Overall, this suggests that the availability of emergency liquidity during natural disaster events is indeed a binding constraint with real household financial consequences, in particular through our documented channel of evictions and in usage of high-cost credit.
Urban Automobile Ownership and Consumption Smoothing—Evidence from Automobile Expenses
Slides
This paper studies the consumption-smoothing consequences of ownership of automobiles as an asset that is used to commute to work. By making use of high-frequency household level banking data from the United States, I document the size and frequency of out-of-pocket automobile expenses and estimate the costs of inability to self-insure when alternative transportation is costly. I show that households with low liquid wealth struggle to finance these expenses directly and must reduce consumption while also carrying credit card balances similar in magnitude to the out-of-pocket expense shock itself. Furthermore, I suggest reasons as to why the existence of present-bias can motivate failure to privately save and insure against these shocks. I show that large welfare gains exist from either extending targeted credit to low wealth households at the time of emergency automobile expenses or indirectly via the existence of public transport infrastructure. Overall, this raises the question of the efficiency of urban policy that results in high automobile ownership for households of low financial wealth due to the riskiness of automobile operating costs.
Work in progress
Costly learning, entry and exit in a dynamic oligopoly framework—Evidence from the Payday loan market (with Amine Aboussalah and Zineb Khziba)
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