Felix Reichling

Bio: Felix Reichling is an academic researcher from University of Pennsylvania. The author has contributed to research in topics: Longevity risk & Fiscal policy. The author has an hindex of 8, co-authored 13 publications receiving 284 citations. Previous affiliations of Felix Reichling include Congressional Budget Office.

Optimal Annuitization with Stochastic Mortality and Correlated Medical Costs

Abstract: The conventional wisdom since Yaari (1965) is that households without a bequest motive should fully annuitize their investments. Numerous frictions do not break this sharp result. We modify the Yaari framework by allowing a household's mortality risk itself to be stochastic due to health shocks. A lifetime annuity still helps to hedge longevity risk. But the annuity's remaining present value is correlated with medical costs, such as those for nursing home care, thereby reducing annuity demand, even without ad-hoc liquidity constraints. We find that most households should not hold a positive level of annuities, and many should hold negative amounts. (JEL D14, D82, G23, I12, J14, J26)

Review of Estimates of the Frisch Elasticity of Labor Supply

Abstract: To enhance the transparency of the work of the Congressional Budget Office (CBO) and to encourage external review of that work, CBO’s working paper series includes both papers that provide technical descriptions of official CBO analyses and papers that represent independent research by CBO analysts. Working papers are not subject to CBO’s regular review and editing process. Papers in this series are available at http://go.usa.gov/ULE.

Review of Estimates of the Frisch Elasticity of Labor Supply: Working Paper 2012-13

Abstract: Among the models that CBO uses to analyze the economic effects of changes in federal fiscal policy is a life-cycle growth model. That model requires an estimate of the responsiveness of the supply of labor to a one-time temporary change in after-tax compensation, which is described by the so-called Frisch elasticity. CBO incorporates into its analyses an estimate of the Frisch elasticity that ranges from 0.27 to 0.53, with a central estimate of 0.40. This paper describes how CBO derived that range from the research literature.

The fiscal multiplier and economic policy analysis in the united states

Abstract: I. INTRODUCTION The Great Recession, which began in December 2007 and ended in June 2009, sparked wide interest in the economic effects of fiscal policy. The downturn initially provoked a flurry of papers estimating how stimulus packages such as the American Recovery and Reinvestment Act of 2009 (ARRA) would affect output and employment. (1) Later, as many policymakers in the United States and Europe sought to reduce government deficits, much attention shifted to the likely effects of fiscal consolidation (increases in taxes and/or decreases in government spending or transfers). (2) In addition, the entire period of recession and slow recovery has seen the release of numerous studies examining how changes in fiscal policy affect economic outcomes. (3) The recent interest in how fiscal policy affects the economy is reflected in an ongoing debate over the size of the fiscal multiplier, the change in a nation's economic output generated by each dollar of the budgetary cost of a change in fiscal policy. The multiplier must be estimated; it cannot be observed. (4) Estimates of the fiscal multiplier vary widely, including values in excess of one and less than zero. (5) What models do economists use to estimate the multiplier? Why do estimates of it vary widely? And how can economists use those estimates to judiciously analyze U.S. economic policy? We address the first two questions by reviewing the rapidly expanding body of academic literature and address the third question by providing an overview of how the Congressional Budget Office (CBO) uses multiplier estimates to analyze fiscal policy proposals and legislation. II. WHAT MODELS DO ECONOMISTS USE TO ESTIMATE THE FISCAL MULTIPLIER? Three types of models are often used to generate estimates of the fiscal multiplier--macroeconometric forecasting models, time series models, and dynamic stochastic general equilibrium (DSGE) models. Each type has strengths and limitations. A. Macroeconometric Forecasting Models Macroeconometric forecasting models, which underlie most of the forecasts offered to the clients of economic consulting firms, are the basis for many estimates of multipliers. The details of those models are based largely on historical relationships between aggregate economic variables and informed by theories of how those variables are determined. Because macroeconometric forecasting models emphasize the influence of the overall demand for goods and services, they tend to estimate greater economic effects from policies that bolster demand than time series models and DSGE models do. (6) The reliability of macroeconometric projections depends heavily on the validity of the specific economic assumptions used. For example, because the models are grounded in observed historical relationships, their estimates rely on the assumption that individuals will, on average, continue to react to the changes in fiscal policies in the same way that they reacted in the past. Consequently, estimates projected by such models might be unreliable when policies or economic conditions differ substantially from those of the past. (7) B. Times Series Models Time series models offer an alternative to macroeconometric forecasting models. In their most basic form, time series models, such as vector autoregression (VAR) models, summarize correlations between economic variables--such as government spending and gross domestic product (GDP)--over time. (8) Because time series models are grounded in historical data and contain little economic theory, they can be useful particularly when there is a reason to believe that existing theories may be inaccurate or based on particularly unrealistic assumptions. However, the lack of theoretical grounding makes it difficult to use time series models to assess the direction of causation between policies and the economy. This is known as the "identification" problem. …

Estimates of the Frisch Elasticity of Labor Supply: A Review

Abstract: This article assesses the literature on the responsiveness of the supply of labor in the case of a temporary change in after-tax compensation. In particular, it reviews the literature on the Frisch elasticity — the sum of the substitution elasticity and a measure of people’s willingness to trade work for consumption over time. The authors find that the estimates of the Frisch elasticity most relevant for fiscal policy analysis range from 0.27 to 0.53 (with a central estimate of 0.40). Using that range, they illustrate how different Frisch elasticities affect the responsiveness of labor supply to changes in fiscal policies. The illustration shows that estimation of the Frisch elasticity can have a significant influence on analyses of the economic effects of such policy changes.

The Family as an Incomplete Annuities Market

Abstract: A new empirical study of the relation between money, nominal income, prices, and real output in postwar quarterly U.S. data rejects virtually all of the conclusions reached by Families provide individuals with risk sharing opportunities which may not otherwise be available. Within the family there is a degree of trust and a level of information which alleviates three key problems in the provision of insurance by markets open to the general public, namely, moral hazard, adverse selection, and deception. The informational advantages of pooling risk within families must be set against the inability of families to provide complete insurance because of the small size of the risk pooling group. This paper demonstrates how families can provide insurance against uncertain dates of death. Death risk sharing family arrangements effectively constitute an incomplete annuities market. Our analysis indicates that these arrangements even in small families can substitute by more than70% for complete annuities. Given the adverse selection problem and transactions costs in public annuity markets, risk pooling in families may well be preferred to purchasing market annuities. In the absence of organized public markets in annuities, these risk sharing arrangements provide powerful economic incentives for marriage and family formation. The paper suggests that inter-family transfers need have nothing to do with altruistic feelings; rather, they may simply reflect risk sharing behavior of completely selfish family members.(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of thi(This abstract was borrowed from another version of this item.)

How Strong are Bequest Motives? Evidence Based on Estimates of the Demand for Life Insurance and Annuities

Abstract: This paper presents new empirical evidence in support of the view that a significant fraction of total saving is motivated solely by the desire to leave bequests. Specifically, I find that Social Security annuity benefits significantly raise life insurance holdings and depress private annuity holdings among elderly individuals. These patterns indicate that the typical household would choose to maintain a positive fraction of its resources in bequeathable forms, even if insurance markets were perfect. Evidence on the relationship between insurance purchases and total resources reinforces this conclusion.

Sign Restrictions, Structural Vector Autoregressions, and Useful Prior Information ∗

Abstract: This paper makes the following original contributions to the literature. (i) We develop a simpler analytical characterization and numerical algorithm for Bayesian inference in structural vector autoregressions (VARs) that can be used for models that are overidentified, just-identified, or underidentified. (ii) We analyze the asymptotic properties of Bayesian inference and show that in the underidentified case, the asymptotic posterior distribution of contemporaneous coefficients in an n-variable VAR is confined to the set of values that orthogonalize the population variance–covariance matrix of ordinary least squares residuals, with the height of the posterior proportional to the height of the prior at any point within that set. For example, in a bivariate VAR for supply and demand identified solely by sign restrictions, if the population correlation between the VAR residuals is positive, then even if one has available an infinite sample of data, any inference about the demand elasticity is coming exclusively from the prior distribution. (iii) We provide analytical characterizations of the informative prior distributions for impulse-response functions that are implicit in the traditional sign-restriction approach to VARs, and we note, as a special case of result (ii), that the influence of these priors does not vanish asymptotically. (iv) We illustrate how Bayesian inference with informative priors can be both a strict generalization and an unambiguous improvement over frequentist inference in just-identified models. (v) We propose that researchers need to explicitly acknowledge and defend the role of prior beliefs in influencing structural conclusions and we illustrate how this could be done using a simple model of the U.S. labor market

Asset Management: A Systematic Approach to Factor Investing

Abstract: Preface: Asset Management Part I: The Asset Owner Chapter 1: Asset Owners Chapter 2: Preferences Chapter 3: Mean-Variance Investing Chapter 4: Investing for the Long Run Chapter 5: Investing Over the Life Cycle Part II: Factor Risk Premiums Chapter 6: Factor Theory Chapter 7: Factors Chapter 8: Equities Chapter 9: Bonds Chapter 10: Alpha (and the Low Risk Anomaly) Chapter 11: " Assets Chapter 12: Tax-Efficient Investing Chapter 13: Illiquid Assets Chapter 14: Factor Investing Part III: Delegated Portfolio Management Chapter 15: Delegated Investing Chapter 16: Mutual Funds and Other 40-Act Funds Chapter 17: Hedge Funds Chapter 18: Private Equity Afterword: Factor Management Appendix: Returns Acknowledgements Bibliography Index