Juan Contreras

Bio: Juan Contreras is an academic researcher from Bank for International Settlements. The author has contributed to research in topics: Factors of production & Incomplete markets. The author has an hindex of 5, co-authored 23 publications receiving 97 citations. Previous affiliations of Juan Contreras include Congressional Budget Office.

Consumption Responses to Permanent and Transitory Shocks to House Appreciation

Abstract: : We estimate the marginal propensity to consume (MPC) out of permanent and transitory shocks to house price appreciation. Besides borrowing constraints, we consider two different models under which those shocks may affect consumption. In the first one, we treat housing as a risky asset. In the second one, housing has a role as a consumption and as an investment good. In both, changes in the rate of house price appreciation may affect nonhousing consumption. Shocks to appreciation rates may happen when increases in future house prices are expected to differ from the current ones because heterogeneity, market failures or errors in expectations. We test the implications of those models empirically using the PSID's imputed total consumption from food consumption and self-reported house values, and base our identification strategy on two sources of variation in the appreciation rate. The first source depends on the fact that home prices are far more cyclical in areas where the supply of housing is relatively inelastic, causing the permanent and the transitory changes in appreciation rates to vary significantly by area. The second source is households? perceptions about which parts of shocks to appreciation rates are permanent or transitory. We model households? self-reported rate of appreciation as an AR(1) process and use both the Hodrick-Prescott and the Kalman filter to separate households? perceptions about permanent and transitory shocks to appreciation. Our results show that (1) consumption responses to house wealth shocks vary greatly by area and depend upon the area-specific levels of temporal persistence and variance of those shocks; (2) the overall MPC out of those shocks is 3.5%; (3) the MPC out of permanent shocks is between 3.4% and 9.1%; and (4) the MPC out of transitory shocks is between 0.5% and 3.3%.

Consumption responses to permanent and transitory shocks to house appreciation

Abstract: We estimate the marginal propensity to consume (MPC) out of permanent and transitory shocks to house price appreciation. We consider two different models under which those shocks may affect consumption. In the first one, housing is a risky asset. In the second one, housing has a role as a consumption and as an investment good. In both, changes in the rate of house price appreciation may affect nonhousing consumption. Shocks to appreciation rates may happen when increases in future house prices are expected to differ from the current ones because heterogeneity, market failures or errors in expectations. We test the implications of those models empirically using the PSID's imputed total consumption from food consumption and self-reported house values, and base our identification strategy on two sources of variation in the appreciation rate. The first source depends on the fact that home prices are far more cyclical in areas where the supply of housing is relatively inelastic. The second source is households' perceptions about which parts of shocks to appreciation rates are permanent or transitory. We model households' self-reported rate of appreciation as an AR(1) process and use both the Hodrick-Prescott and the Kalman filter to separate households' perceptions about permanent and transitory shocks to appreciation. Our results show that (1) consumption responses to house wealth shocks vary greatly by area and depend upon the area-specific levels of temporal persistence and variance of those shocks; (2) the overall MPC out of those shocks is 3.5%; (3) the MPC out of permanent shocks is between 3.4% and 9.1%; and (4) the MPC out of transitory shocks is between 0.5% and 3.3%.

Assessing the Empirical Validity of the Intertemporal Labor Supply Response from a Stochastic Overlapping Generations Model with Incomplete Markets

Abstract: We evaluate the labor supply response in a stochastic overlapping generations model with incomplete markets and a non separable utility function in labor and consumption. Using a simulated panel from the model, we calculate the labor supply response to anticipated changes in wages (holding the marginal utility of wealth constant-that is, the Frisch elasticity) and to unanticipated change in wages (which describes the effect of uncertainty in labor supply responses). The model’s Frisch elasticity estimate is 0.33, which is slightly higher than the empirical estimates in the earlier literature but somewhat lower than more recent estimates. The paper also shows that the borrowing constraints in the model reduce substantially the estimates of the Frisch elasticity. The labor supply response to an unanticipated change in wages is small because of large wealth effects. Having all the variables required and no measurement error, we calculate the omitted variable bias of not controlling for the level and variance (risk) of the unexpected changes in wages. Omitting both variables biases the estimates of the Frisch elasticity downward by a factor of 8; omitting measures of wage risk alone biases it by a factor of 1.4. JEL CODES: J22, D91, D58

Does doctors' experience matter in LASIK surgeries?

Abstract: In this article, we use a longitudinal census of laser in situ keratomileusis (LASIK) eye surgeries collected directly from patient charts to examine the learning-by-doing hypothesis in medicine. LASIK surgery has precise measures of presurgical condition and postsurgical outcomes. Unlike other types of surgery, the impact of unobservable underlying patient conditions on outcomes is minimal. Individual learning by doing is identified through observations of surgical outcomes over time, based on the cumulative number of surgeries performed. Collective learning is identified separately, through changes in a group adjustment rule determined jointly by all the surgeons in a structured internal review process. Our unique data set overcomes some of the measurement problems in patient outcomes encountered in other studies and improves the possibility of identifying and separating the impact of learning by doing from other effects. We cannot conclude that the outcome of LASIK surgery improves as an individual surgeon's experience increases, but we find strong evidence that experience accumulated by surgeons as a group in a clinic significantly improves outcomes.

Labor supply response in macroeconomic models: Assessing the empirical validity of the intertemporal labor supply response from a stochastic overlapping generations model with incomplete markets

Abstract: We evaluate the labor supply response in a stochastic overlapping generations model with incomplete markets and a non separable utility function in labor and consumption. Using a simulated panel from the model, we calculate the labor supply response to anticipated changes in wages (holding the marginal utility of wealth constant-that is, the Frisch elasticity) and to unanticipated change in wages (which describes the effect of uncertainty in labor supply responses). The model's Frisch elasticity estimate is 0.33, which is slightly higher than the empirical estimates in the earlier literature but somewhat lower than more recent estimates. The paper also shows that the borrowing constraints in the model reduce substantially the estimates of the Frisch elasticity. The labor supply response to an unanticipated change in wages is small because of large wealth effects. Having all the variables required and no measurement error, we calculate the omitted variable bias of not controlling for the level and variance (risk) of the unexpected changes in wages. Omitting both variables biases the estimates of the Frisch elasticity downward by a factor of 8; omitting measures of wage risk alone biases it by a factor of 1.4

Code and data files for "Consumption over the Life Cycle: How Different is Housing?"

Abstract: Files necessary to estimate non-housing consumption, housing consumption for renters and owners, as well as the wealth profile for the latter, as well as further results described in the paper. Warning, the file is large, but does not contain the data from the Consumer Expenditure Survey and the Survey of Consumer Finances

Reconciling micro and macro estimates of the frisch labor supply elasticity

Abstract: This paper explores the large gap between the microeconometric estimates of the Frisch labor supply elasticity (0–.5) and the values used by macroeconomists to calibrate general equilibrium models (2–4). These two ranges identify two fundamentally different notions, the micro and macro Frisch elasticity, respectively. Due to the different definitions, there are two restrictions in the micro Frisch elasticity that are relaxed in the macro Frisch elasticity. First, the micro Frisch elasticity focuses only on prime-aged married males who are the head of their household, while the macro Frisch elasticity represents the whole population. Second, the micro Frisch elasticity only incorporates intensive margin fluctuations in hours, while the macro Frisch elasticity includes both intensive and extensive margin fluctuations. This paper finds that relaxing these two restrictions causes estimates of the Frisch elasticity to increase from 0.2 to between 2.9 and 3.1, indicating that these two restrictions can explain the gap between the microeconometric estimates and the calibration values. However, this paper demonstrates that these estimates of the macro Frisch elasticity are sensitive to the estimation procedure and also the exclusion of older individuals, implying that calibration values used for macroeconomic models should be selected carefully. (JEL E24, J22)