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The Lost Generation of the Great Recession

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  • Sewon Hur

    (University of Pittsburgh)

Abstract

This paper analyzes the effects of the Great Recession on different generations. While older generations suffered the largest decline in wealth due to the collapse in asset prices, younger generations suffered the largest decline in labor income. Potentially, some households may have benefited from the purchase of cheaper assets. To analyze the impact of these channels, I construct an overlapping-generations model with borrowing constraints in which households choose a portfolio of risky and risk-free assets. In response to shocks to labor income and asset markets resembling the Great Recession, young risky asset holders suffer the largest welfare losses, equivalent to a 33 percent reduction in one-period consumption. (Copyright: Elsevier)

Suggested Citation

  • Sewon Hur, 2018. "The Lost Generation of the Great Recession," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 30, pages 179-202, October.
  • Handle: RePEc:red:issued:18-178
    DOI: 10.1016/j.red.2018.05.004
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    Cited by:

    1. Ampudia, Miguel & Pavlickova, Akmaral & Slacalek, Jiri & Vogel, Edgar, 2016. "Household heterogeneity in the euro area since the onset of the Great Recession," Journal of Policy Modeling, Elsevier, vol. 38(1), pages 181-197.
    2. Gauti B. Eggertsson & Neil R. Mehrotra & Jacob A. Robbins, 2019. "A Model of Secular Stagnation: Theory and Quantitative Evaluation," American Economic Journal: Macroeconomics, American Economic Association, vol. 11(1), pages 1-48, January.
    3. Era Dabla-Norris & Carlo Pizzinelli & Jay Rappaport, 2019. "Job Polarization and the Declining Fortunes of the Young: Evidence from the United Kingdom," IMF Working Papers 2019/216, International Monetary Fund.
    4. Makoto Nakajima, 2013. "The diverse impacts of the great recession," Business Review, Federal Reserve Bank of Philadelphia, issue Q2, pages 17-29.
    5. Carroll, Daniel R. & Hur, Sewon, 2020. "On the heterogeneous welfare gains and losses from trade," Journal of Monetary Economics, Elsevier, vol. 109(C), pages 1-16.
    6. Daniel R. Carroll & Sewon Hur, 2020. "On the Distributional Effects of International Tariffs," Working Papers 202018, Federal Reserve Bank of Cleveland.
    7. Menno, Dominik & Oliviero, Tommaso, 2020. "Financial intermediation, house prices, and the welfare effects of the U.S. Great Recession," European Economic Review, Elsevier, vol. 129(C).
    8. Ferrari, Alessandro, 2020. "Losers amongst the losers: the welfare effects of the Great Recession across cohorts," Working Paper Series 2509, European Central Bank.
    9. William B. Peterman & Kamila Sommer, 2014. "How Well Did Social Security Mitigate the Effects of the Great Recession?," Finance and Economics Discussion Series 2014-13, Board of Governors of the Federal Reserve System (U.S.).
    10. William R. Emmons & Bryan J. Noeth, 2013. "Economic vulnerability and financial fragility," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 361-388.

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    More about this item

    Keywords

    Great Recession; Heterogeneous agents; Overlapping generations; Portfolio choice; Borrowing constraints;
    All these keywords.

    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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