Robert Barsky

Bio: Robert Barsky is an academic researcher from National Bureau of Economic Research. The author has contributed to research in topics: Inflation & Interest rate. The author has an hindex of 37, co-authored 74 publications receiving 11229 citations. Previous affiliations of Robert Barsky include Massachusetts Institute of Technology & Federal Reserve Bank of Chicago.

Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Survey

Abstract: Individuals' preferences underlying most economic behavior are likely to display substantial heterogeneity. This paper reports on direct measures of preference parameters relating to risk tolerance, time preference, and intertemporal substitution. These experimental measures are based on survey respondents' choices in hypothetical situations. The questions are constructed with as little departure from the theorist's concept of the underlying parameter as possible. The individual measures of preference parameters display substantial heterogeneity. The majority of respondents fall into the least risk-tolerant group, but a substantial minority display higher risk tolerance. The individual measures of intertemporal substitution and time preference also display substantial heterogeneity. The mean risk tolerance is 0.25; the mean elasticity of intertemporal substitution is 0.2. Estimated risk tolerance and the elasticity of intertemporal substitution are essentially uncorrelated across individuals. Because the risk tolerance measure is obtained as part of the main questionnaire of a large survey, it can be related to a number of economic behaviors. Measured risk tolerance is positively related to a number of risky behaviors, including smoking, drinking, failing to have insurance, and holding stocks rather than Treasury bills. Although measured risk tolerance explains only a small fraction of the variation of the studied behaviors, these estimates provide evidence about the validity and usefulness of the measures of preference parameters.

Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Study

Abstract: This paper reports measures of preference parameters relating to risk tolerance, time preference, and intertemporal substitution. These measures are based on survey responses to hypothetical situations constructed using an economic theorist's concept of the underlying parameters. The individual measures of preference parameters display heterogeneity. Estimated risk tolerance and the elasticity of intertemporal substitution are essentially uncorrelated across individuals. Measured risk tolerance is positively related to risky behaviors, including smoking, drinking, failing to have insurance, and holding stocks rather than Treasury bills. These relationships are both statistically and quantitatively significant, although measured risk tolerance explains only a small fraction of the variation of the studied behaviors.

Oil and the Macroeconomy Since the 1970s

Abstract: Economists have long been intrigued by empirical evidence that suggests that oil price shocks may be closely related to macroeconomic performance. This interest dates back to the 1970s. The 1970s were a period of growing dependence on imported oil, unprecedented disruptions in the global oil market and poor macroeconomic performance in the United States. Thus, it was natural to suspect a causal relationship from oil prices to U.S. macroeconomic aggregates. Since then, a large body of work has accumulated that purports to establish this link on theoretical grounds and to provide empirical evidence in its support. We do not attempt a comprehensive survey of this literature, but rather provide an idiosyncratic synthesis of what we view as the key issues in this debate and the insights gained over the last 30 years. The timing seems right for such an account. Although the experience of the 1970s continues to play an important role in discussions of the link between oil and the macroeconomy, there have been a number of new “oil price shocks” since the 1970s, notably the 1986 collapse of oil prices and the 2000 boom in oil prices as well as the oil price increases associated with the 1990 –1991 Gulf war and the 2003 Iraq war. Given this richer case history, we are arguably in a better position than two decades ago to distinguish the idiosyncratic features of each oil crisis from the systematic effects. Increases in oil prices have been held responsible for recessions, periods of excessive inflation, reduced productivity and lower economic growth. In this paper, we review the arguments supporting such views. First, we highlight some of the conceptual difficulties in assigning a central role to oil price shocks in explaining

Measuring the Cyclicality of Real Wages: How Important is Composition Bias

Abstract: In the period since the 1960's, as in other periods, aggregate time series on real wages have displayed only modest cyclicality Macroeconomists therefore have described weak cyclicality of real wages as a salient feature of the business cycle Contrary to this conventional wisdom, our analysis of longitudinal microdata indicates that real wages have been substantially procyclical since the 1960's We also find that the substantial procyclicality of men's real wages pertains even to workers that stay with the same employer and that women's real wages are less procyclical than men's Numerous longitudinal studies besides ours have documented the substantial procyclicality of real wages, but none has adequately explained the discrepancy with the aggregate time series evidence In accordance with a conjecture by Stockman (I983), we show that the true procyclicality of real wages is obscured in aggregate time series because of a composition bias: the aggregate statistics are constructed in a way that gives more weight to low-skill workers during expansions than during recessions We conclude that, because real wages actually are much more procyclical than they appear in aggregate statistics, theories designed to explain the supposed weakness of real wage cyclicality may be unnecessary and theories that predict substantially procyclical real wages become more credible

Information, Animal Spirits, and the Meaning of Innovations in Consumer Confidence

Abstract: We show that unexplained innovations in several variables representing survey responses to forwardlooking questions on the Michigan Survey of Consumers have powerful prognostic implications for the future paths of macroeconomic variables. We attempt to distinguish the hypothesis that these impulse responses indicate a causal channel from autonomous movements in sentiment to economic outcomes (the “animal spirits” view) from the alternative interpretation that the surprise confidence movements summarize information about future economic prospects (the “information” view). In natural rate models, “animal spirits” shocks are associated with “overshooting” of (among other variables) consumption that attenuates when agents come to grips with their overreaction, while “information shocks” about the long future are followed by gradual movements in macroeconomic variables that are not subsequently reversed. In a baseline vector autoregression involving consumption, income, and confidence, the data come down sharply in favor of the information view. The impulse responses of consumption and GDP show no tendency to attenuate even after a number of years. Further, confidence innovations have strong implications for labor productivity many quarters into the future. In somewhat larger VARs with an information block that includes inflation and/or stock prices, the impulse responses to confidence innovations continue to have the permanent shape that defines information shocks, but they are smaller in magnitude. We demonstrate that this is due to the fact that both inflation and stock price innovations have prognostic implications for future productivity that are very similar to the implications of innovations in confidence. Addition of unemployment to the system induces a transitory component that changes the shape of the impulse responses and somewhat weakens the previously airtight case against animal spirits, but it does not provide constructive evidence of such effects.

Conditional heteroskedasticity in asset returns: a new approach

Abstract: This paper introduces an ARCH model (exponential ARCH) that (1) allows correlation between returns and volatility innovations (an important feature of stock market volatility changes), (2) eliminates the need for inequality constraints on parameters, and (3) allows for a straightforward interpretation of the "persistence" of shocks to volatility. In the above respects, it is an improvement over the widely-used GARCH model. The model is applied to study volatility changes and the risk premium on the CRSP Value-Weighted Market Index from 1962 to 1987. Copyright 1991 by The Econometric Society.

Risk as Feelings

Abstract: Virtually all current theories of choice under risk or uncertainty are cognitive and consequentialist. They assume that people assess the desirability and likelihood of possible outcomes of choice alternatives and integrate this information through some type of expectation-based calculus to arrive at decision. The authors propose an alternative theoretical perspective, the risk-as-feelings hypothesis, that highlights the role of affect experienced at the moment of decision making. Drawing on research from clinical, physiological, and other subfield of psychology, they show that emotional reactions to risky situations often drive behavior. The risk-as-feelings hypothesis is shown to explain a wide range of phenomena that have resisted interpretation in cognitive-consequentialist terms.

Risk as feelings.

Abstract: Virtually all current theories of choice under risk or uncertainty are cognitive and consequentialist. They assume that people assess the desirability and likelihood of possible outcomes of choice alternatives and integrate this information through some type of expectation-based calculus to arrive at a decision. The authors propose an alternative theoretical perspective, the risk-as-feelings hypothesis, that highlights the role of affect experienced at the moment of decision making. Drawing on research from clinical, physiological, and other subfields of psychology, they show that emotional reactions to risky situations often diverge from cognitive assessments of those risks. When such divergence occurs, emotional reactions often drive behavior. The risk-as-feelings hypothesis is shown to explain a wide range of phenomena that have resisted interpretation in cognitive-consequentialist terms.

Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment

Abstract: Theoretical models of financial markets built on the assumption that some investors are overconfident yield one central prediction: overconfident investors will trade too much. We test this prediction by partitioning investors on the basis of a variable that provides a natural proxy for overconfidence--gender. Psychological research has established that men are more prone to overconfidence than women. Thus, models of investor overconfidence predict that men will trade more and perform worse than women. Using account data for over 35,000 households from a large discount brokerage firm, we analyze the common stock investments of men and women from February 1991 through January 1997. Consistent with the predictions of the overconfidence models, we document that men trade 45 percent more than women and earn annual risk-adjusted net returns that are 1.4 percent less than those earned by women. These differences are more pronounced between single men and single women; single men trade 67 percent more than single women and earn annual risk-adjusted net returns that are 2.3 percent less than those earned by single women.