Low interest rates, housing choice and wealth accumulation (with Julia Braun and Alexander Braun)

We examine the effect of prolonged low interest rates on homeownership rates and the ensuing consequences for the intra- and inter-generational wealth distribution. Using survey data from the Panel Study of Income Dynamics from 1984 until 2019, we find that periods of higher long-term interest rates coincide with an increase in homeownership rates. Conversely, individuals who do not participate in the housing market experience negative consequences on their life-cycle wealth accumulation. Based on our empirical findings, we develop a life cycle model that incorporates housing and mortgage choice. Our model suggests that a decrease in interest rates may affect the decision to purchase a home by prolonging the savings period required for a certain downpayment level, ultimately resulting in a deferral in home purchases.

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The effects of firm market power on inflation heterogeneity

In models with monopolistically  competitive or fully competitive markets, price responses to an inflationary shock do not depend on changes in aggregate demand. However, empirical evidence shows that prices for luxury goods tend to react less to inflation than prices for necessity goods, which may be a reaction of firms to changes in household demand for different types of goods.

I use a two sector (basic goods vs. luxury) goods model with oligopolistic competition and non-homothetic preferences to show that firm market power is an important assumption to replicate asymmetric price responses of different sectors to inflation. My model is able to produce high inflation exposure of poorer households, an observation which has been made empirically.

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