Author Archives: webdevel

How Big is the Wealth Effect? Decomposing the Response of Consumption to House Prices

(with Ronel Elul and Şebnem Kalemli-Özcan)


We investigate the effect of declining house prices on household consumption behavior during 2006–2009. We use an individual-level data set that has detailed information on borrower characteristics, mortgages and credit risk. Proxying consumption by individual-level auto loan originations, we decompose the effect of declining house prices on consumption into three main channels: wealth effect, household financial constraints, and bank health. We find a negligible wealth effect. Tightening household-level financial constraints can explain 40-45 percent of the response of consumption to declining house prices. Deteriorating bank health leads to reduced credit supply both to households and firms. Our dataset allows us to estimate the effect of this on households as 20-25 percent of the consumption response. The remaining 35 percent is a general equilibrium effect that works via a decline in employment as a result of either lower credit supply to firms or the feedback from lower consumer demand. Our estimate of a negligible wealth effect is robust to accounting for the endogeneity of house prices and unemployment. The contribution of tightening household financial constraints goes down to 35 percent, whereas declining bank credit supply to households captures about half of the overall consumption response, once we account for endogeneity.

First draft  : March 2018


Most Recent Working Paper  [May 2018]

Top Universities Have Top Economics Departments


“It is nearly impossible to be a top university without a first-rate economics department.” Columbia University’s president Lee Bollinger is reported to have said this in a news article chronicling the rise of the Economics Department at Columbia in the early 2000s. In this short note I seek to investigate if there is evidence for this claim. The results show that there is a large correlation between being a good university and having a good Economics department — more so than having a good department in a large fraction of other fields.

Paper [May 2016]

Additional Materials

Underlying Data

Inflation During and After the Zero Lower Bound

(with Frank Schorfheide)

Prepared for the Jackson Hole Economic Policy Symposium titled Inflation Dynamics and Monetary Policy organized by the Federal Reserve Bank of Kansas City in Jackson Hole, WY, August 27-29, 2015. Published in the proceedings, 2016, 359-436.


First Draft: June 2015


Most Recent Working Paper [September 2015]

Additional Materials

Press Mention — Reuters

Press Mention — Frankfurter Allgemeine (in German)

Press Mention — Bloomberg

Press Mention — MNI

A Real Economic Activity Indicator for Turkey

(with Cagri Sarikaya)

Published in Central Bank Review, January 2013, 13, 15-29


This paper presents a monthly indicator of real economic activity for historical accounting and real-time monitoring of business cycles in Turkey. Business conditions, an unobserved component implied by the interaction and co-movement of various macroeconomic variables, are related to a number of observables at multiple frequencies and estimated within a dynamic factor model. We introduce a recession indicator and thereby compare the severity of turbulence/crisis periods during 1987-2011. High degree of uncertainty embodied in the end-of-sample factor estimates complicates real time detection of recessions and thus points to the need for timely information in a forward-looking policy framework.


Published Version

A Comparison of Programming Languages in Macroeconomics

(with Jesus Fernandez-Villaverde)

Published in Journal of Economic Dynamics and Control, September 2015, 58, 265-273.


We solve the stochastic neoclassical growth model, the workhorse of modern macroeconomics, using C++14, Fortran 2008, Java, Julia, Python, Matlab, Mathematica, and R. We implement the same algorithm, value function iteration, in each of the languages. We report the execution times of the codes in a Mac and in a Windows computer and briefly comment on the strengths and weaknesses of each language.

First draft  : July 2014


Most Recent Working Paper  (may not be identical to the published version)

Published Version (requires subscription)

Additional Materials

GitHub page containing all codes

A Structural Model of Electoral Accountability

(with Allan Drazen and Razvan Vlaicu)

Forthcoming in International Economic Review


This paper proposes a structural approach to measuring the effects of electoral accountability. We estimate a political agency model with imperfect information in order to identify and quantify discipline and selection effects, using data on U.S. governors. We find that the possibility of reelection provides a significant incentive for incumbents to exert effort, that is, a disciplining effect. We also find a positive but weaker selection effect. According to our model, the widely-used two-term regime improves voter welfare by 4.2% compared to a one-term regime.

First draft  : April 2015


Most Recent Working Paper  [May 2018]

NBER Working Paper 21151 [May 2015]

Term Structures of Inflation Expectations and Real Interest Rates

Forthcoming in Journal of Economic Business and StatisticsACS_figure

I use a statistical model to combine various surveys to produce a term structure of inflation expectations — inflation expectations at any horizon — and an associated term structure of real interest rates. Inflation expectations extracted from this model track realized inflation quite well, and in terms of forecast accuracy, they are at par with or superior to some popular alternatives. The real interest rates obtained from the model follow TIPS rates as well.

First draft  : August 2014

Federal Reserve Bank of Philadelphia is producing ATSIX (Aruoba Term Structure of Inflation Expectations) based on this paper.


Federal Reserve Bank of Minneapolis Staff Report [August 2014]

Federal Reserve Bank of Philadelphia Working Paper [March 2016]

Most Recent Working Paper  [January 2018]

Press and Blog Mentions

Econ Browser [May 2016]

Additional Materials

Movie of Inflation Expectations (1992-2015)

Maryland Center for Economics and Policy (MCEP) Summary