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The Lost Generation of the Great Recession

Author

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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. Eggertsson, Gauti B. & Mehrotra, Neil & Robbins, Jacob A., 2017. "A Model of Secular Stagnation: Theory and Quantitative Evaluation," Working Papers 742, Federal Reserve Bank of Minneapolis.
    3. Peterman, William B. & Sommer, Kamila, 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.).
    4. Emmons, William R. & Noeth, Bryan J., 2013. "Economic vulnerability and financial fragility," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 361-388.
    5. Makoto Nakajima, 2013. "The diverse impacts of the great recession," Business Review, Federal Reserve Bank of Philadelphia, issue Q2, pages 17-29.

    More about this item

    Keywords

    Great Recession; Heterogeneous agents; Overlapping generations; Portfolio choice; Borrowing constraints;

    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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