Matthew D. Shapiro's research while affiliated with University of Michigan and other places
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Publications (120)
This paper estimates how overall consumer spending responds to changes in gasoline prices. It uses the differential impact across consumers of the sharp drop in gasoline prices in 2014 for identification. This estimation strategy is implemented using comprehensive, high-frequency, transaction-level data for a large panel of individuals. The average...
Linkage errors in probabilistically matched data sets can cause biases in the estimation of regression coefficients. This article proposes an approach to obtain consistent estimates and valid inference that relies on instrumental variables. The novelty of the method is to show that instrumental variables arise naturally in the course of probabilist...
Cognitive decline may lead older Americans to make poor financial decisions. Preventing poor decisions may require timely transfer of financial control to a reliable agent. Cognitive decline, however, can develop unnoticed, creating the possibility of suboptimal timing of the transfer of control. This paper presents survey-based evidence that older...
Low liquidity and a high marginal propensity to consume are tightly linked. This paper analyzes this link in the context of income tax withholding and refunds. A theory of rational cash management with income uncertainty endogenizes the relationship between illiquidity and the marginal propensity to consume, and can explain the finding that househo...
The past decade has witnessed a growth in the use of knowledge graph technologies for advanced data search, data integration, and query-answering applications. The leading example of a public, general-purpose open knowledge network (aka knowledge graph) is Wikidata, which has demonstrated remarkable advances in quality and coverage over this time....
The past decade has witnessed a growth in the use of knowledge graph technologies for advanced data search, data integration, and query‐answering applications. The leading example of a public, general‐purpose open knowledge network (aka knowledge graph) is Wikidata, which has demonstrated remarkable advances in quality and coverage over this time....
Older Americans, even those who are long retired, have strong willingness to work, especially in jobs with flexible schedules. For many, labor force participation near or after normal retirement age is limited more by a lack of acceptable job opportunities or low expectations about finding them than by unwillingness to work longer. This paper estab...
This paper develops an overlapping generations model of optimal rebalancing where agents differ in age and risk tolerance. Equilibrium rebalancing is driven by a leverage effect that influences levered and unlevered agents in opposite directions, an aggregate risk tolerance effect that depends on the distribution of wealth, and an intertemporal hed...
The Subjective ex ante Treatment Effect is the difference between the probabilities of an outcome conditional on a treatment. The SeaTE yields ex ante causal effects at the individual level. The paper gives an interpretation in two workhorse econometric frameworks: potential outcomes and dynamic programming. It finds large effect heterogeneity of h...
Key macro indicators such as output, productivity, and inflation are based on a complex system across multiple statistical agencies using different samples and levels of aggregation. The Census Bureau collects nominal sales, the Bureau of Labor Statistics collects prices, and the Bureau of Economic Analysis constructs nominal and real GDP using the...
This article jointly estimates the relationship between stock share and expectations and risk preferences. The survey allows individual-level, quantitative estimates of risk tolerance and of the perceived mean, and variance of stock returns. These estimates have economically and statistically significant association for the distribution of stock sh...
Prior literature has established that displaced workers suffer persistent earnings losses by following workers in administrative data after mass layoffs. This literature assumes that these are involuntary separations owing to economic distress. This paper examines this assumption by matching survey data on worker- supplied reasons for separations w...
Using comprehensive account records, this paper examines how individuals adjusted spending and saving in response to a temporary drop in liquidity due to the 2013 U.S. government shutdown. The shutdown cut paychecks by 40% for affected employees, which was recovered within 2 weeks. Because the shutdown affected only the timing of payments, it provi...
Prior literature has established that displaced workers suffer persistent earnings losses by following workers in administrative data after mass layoffs. This literature assumes that these are involuntary separations owing to economic distress. This paper examines this assumption by matching survey data on worker-supplied reasons for separations wi...
Balance-sheet repair drove the response of a significant fraction of households to fiscal stimulus following the Great Recession. By combining survey, behavioral, and time-series evidence on the 2011 payroll tax cut and its expiration in 2013, this papers identifies and analyzes households who smooth debt repayment. These "balance-sheet households"...
Using comprehensive account records, this paper examines how individuals respond to a temporary drop in income following the 2013 U.S. Federal Government shutdown. Affected employees saw their income decline by 40% on average, which was recovered within two weeks. Despite having no effect on lifetime earnings, spending dropped sharply, implying a n...
Balance-sheet repair drove the response of a significant fraction of households to fiscal stimulus following the Great Recession. By combining survey, behavioral, and time-series evidence on the 2011 payroll tax cut and its expiration in 2013, this papers identifies and analyzes households who smooth debt repayment. These "balance-sheet households"...
Balancing your incomings and outgoings
Economic theory predicts that when someone receives money should have little effect on their spending patterns. Gelman et al. constructed a data set of 60 million transactions made by 75,000 people to test this theory. People do seem to go on a mini–spending spree after they get their paychecks or pensions. Ho...
This paper asks whether the slow recovery of the US economy from the trough of the Great Recession was anticipated, and identifies some of the factors that contributed to surprises in the course of the recovery. It constructs a narrative using news reports and government announcements to identify policy and financial shocks. It then compares foreca...
Recent fiscal policies, including the 2008 stimulus payments and the 2009 Making Work Pay Tax Credit, aimed to increase household spending. This paper quantifies the spending response to these policies and examines differences in spending by whether the stimulus was delivered as a one-time payment or as a flow of payments from reduced withholding....
That the employment rate appears to respond to changes in trend growth is an enduring macroeconomic puzzle. This paper shows that, in the presence of a return to experience, a slowdown in productivity growth raises reservation wages, thereby lowering aggregate employment. The paper develops new evidence that shows this mechanism is important for ex...
Standard portfolio advice is that agents should hold a constant share of risky assets. All agents cannot, however, follow this advice because supply and demand of risky assets must be equal. To study equilibrium rebalancing, the paper develops an overlapping generations model in which agents differ both in age and risk tolerance. Equilibrium rebala...
Most capital in the United States is idle much of the time. By some measures, the average workweek of capital in U.S. manufacturing is as low as 55 hours per 168 hour week. The level and variability of capital utilization has important implications for understanding both the level of production and its cyclical fluctuations. This paper investigates...
This paper uses the Cognitive Economics Study (CogEcon) to assess the effect of the financial crisis on the well-being of older Americans. Financial wealth fell by about 15 percent for the median household. These financial losses were concentrated among households with high levels of wealth and high cognitive capacities, who tend to have higher exp...
We propose and implement a novel approach for the identi…cation of "news shocks" about changes in future technology. In a VAR featuring a measure of observed aggre-gate technology, forward-looking variables, and macroeconomic aggregates, we identify the news shock as the shock orthogonal to observed technology innovations that best explains variati...
Recent fiscal policies have aimed to stimulate household spending. In 2008, most households received one-time economic stimulus payments. In 2009, most working households received the Making Work Pay tax credit in the form of reduced withholding other households, mainly retirees, received one-time payments. This paper quantifies the spending respon...
Despite widespread acceptance and application of real options theory in the economic literature, little empirical work has attempted to assess the extent to which firm behavior accords with the theory's prescriptions. In particular, it is not well-known whether, or by how much, firms actually delay irreversible investments following an increase in...
Only about one-fifth of respondents in the Reuters/University of Michigan survey report that the 2008 tax rebates led them to mostly increase spending, while over half said it would lead them to mostly pay off debt. Of those in the mostly-spend category, the response was swift, with over 80 percent reporting increasing their spending within three m...
Consumption provides a comprehensive measurement of economic well-being. This research shows that consumption is well-insured with respect to health status and widowing. Using data from the Health and Retirement Study (HRS) and its CAMS supplement, it shows that consumption responds little to changes in health status even though adverse health gene...
Survey measures of preference parameters provide a means for accounting for otherwise unobserved heterogeneity.This paper presents measures of relative risk tolerance based on responses to survey questions about hypothetical gambles over lifetime income.It discusses how to impute estimates of utility function parameters from the survey responses us...
Only one-fifth of respondents to a rider on the University of Michigan Survey Research Center’s Monthly Survey said that the 2008 tax rebates would lead them to mostly increase spending. Almost half said the rebate would mostly lead them to pay off debt, while about a third saying it would lead them mostly to save more. The survey responses imply...
Only about one-fifth of respondents in the Reuters/University of Michigan survey report that the 2008 tax rebates led them to mostly increase spending, while over half said it would lead them to mostly pay off debt. Of those in the mostly-spend category, the response was swift, with over 80 percent reporting increasing their spending within three m...
This paper emphasizes the role of wage growth in shaping work incentives. It provides an analytical framework for labor supply in the presence of a return to labor market experience and aggregate productivity growth. A key finding of the theory is that there is an interaction between these two forms of wage growth that explains why aggregate produc...
Economic theory assigns a central role to risk preferences. This article develops a measure of relative risk tolerance using responses to hypothetical income gambles in the Health and Retirement Study. In contrast to most survey measures that produce an ordinal metric, this article shows how to construct a cardinal proxy for the risk tolerance of e...
Labor supply is unresponsive to permanent changes in wage rates. Thus, income and substitution effects cancel, but are they both close to zero or both large? This paper develops a theory of labor supply where income and substitution effects cancel, taking into account optimization over time, fixed costs of going to work, and interactions of labor s...
The intertemporal elasticity of investment for long-lived capital goods is nearly infinite. Consequently, investment prices should fully reflect temporary tax subsidies, regardless of the investment supply elasticity. Since prices move one-for-one with the subsidy, elasticities can be inferred from quantities alone. This paper uses a recent tax pol...
This chapter addresses the question of why computers lose their economic value so quickly. Data was gathered on the characteristics of over 3,000 computers, including the new and used price, detailed features of the computer, and age. By linking the ratio of the used and new price of the computer to observable characteristics, key components of the...
Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including notice, is given to the source.
Investment decisions are inherently forward-looking. The payoff of acquiring capital goods, particularly long-lived capital goods, is governed almost exclusively by events in the far future. Because the timing of the investment itself does not affect future payoffs, there are strong incentives to delay or accelerate investment to take advantage of...
This paper uses a dynamic general equilibrium model to analyze and quantify the aggregate effects of the timing of tax rate changes enacted in 2001 (which called for successive rate reductions through 2006) and 2003 (which made immediate tax rate cuts scheduled for 2004 and 2006). The phased-in nature contributed to the slow recovery from the 2001...
The Fed kept interest rates low and essentially unchanged during the late 1990s despite a booming economy and record-low unemployment. These interest rates were accommodative by historical standards. Nonetheless, inflation remained low. How did the Fed succeed in sustaining rapid economic growth without fueling inflation and inflationary expectatio...
Abstract A comment on the article by W. Erwin Diewert in this volume.
A comment on the article by W. Erwin Diewert in this volume. Copyright 2005 American Journal of Economics and Sociology, Inc..
Price deflators for semiconductors fell rapidly over the 1990s, pulled down by steep declines in the deflator for the microprocessor (MPU) segment that accelerated around 1995. A decomposition of a price index for Intel's MPUs suggests that virtually all of the declines in the price index--and the acceleration--can be attributed to quality increase...
New Zealand's recent rate of economic growth has remained strong despite a worldwide recession. Policymakers, the press, and the public have nonetheless been concerned that New Zealand's economic performance has lagged along some important dimensions. This paper presents some new estimates of the rate of technological change in New Zealand and comp...
The effect of Social Security rules on the age people choose to retire can be critical in evaluating proposed changes to those rules. This research derives a theory of retirement that views retirement as a special type of labor supply decision. This decision is driven by wealth and substitution effects on labor supply, interacting with a fixed cost...
Since unification, the debate about Germany's poor economic performance has focused on supply-side weaknesses, and the associated reform agenda sought to make low-skill labour markets more flexible. We question this diagnosis using three lines of argument. First, effective restructuring of the supply side in the core advanced industries was carried...
This chapter investigates the behavior of price indexes constructed from high-frequency scanner data. It also explores how consumer behavior at high-frequency—specifically, weekly purchases of canned tuna—influence the application of index number formulas that have typically been implemented for lower-frequency or time-average data. The upward bias...
Every time you buy a can of tuna or a new television, its bar code is scanned to record its price and other information. These "scanner data" offer a number of attractive features for economists and statisticians, because they are collected continuously, are available quickly, and record prices for all items sold, not just a statistical sample. But...
In 2001, many households received rebate checks as advanced payments of the benefit of the new, 10 percent federal income tax bracket. A survey conducted at the time the rebates were mailed finds that few households said that the rebate led them mostly to increase spending. A follow-up survey in 2002, as well as a similar survey conducted after the...
Measured productivity growth increased substantially during the second half of the 1990s. This paper examines whether this increase owes to an increase in the rate of technological change or whether it can be explained by non-technological factors relating to factor utilization, factor accumulation, or returns to scale. It finds that the recent inc...
Health expenditure on life-extending medical treatments can not only increase current-period utility, but have durable effects on utility. By making the number of periods of life endogenous, health expenditures can cause interesting, and even perverse, implications for cost-of-living measurement. This chapter argues that economic decision making by...
This paper investigates the use of high-frequency scanner data to construct price indexes. In the presence of inventory behavior, purchases and consumption by individuals differ over time. Cost-of-living indexes can still be constructed using data on purchases. For weekly data on canned tuna, the paper contrast two different types of price indexes:...
: The half-life of deviations from purchasing power parity (PPP) plays a central role in the ongoing debate about the ability of macroeconomic models to account for the time series behavior of the real exchange rate. The main contribution of this paper is a general framework in which alternative priors for the half-life of deviations from PPP can b...
Using equipment-level data from aerospace plants that closed during the 1990s, this paper studies the process of moving installed physical capital to a new use. The analysis yields three results that suggest significant sectoral specificity of physical capital and costs of re-deploying the capital. First, other aerospace companies are over-represen...
Changes in government spending often lead to significant shifts in demand across sectors. This paper analyzes the effects of sector-specific changes in government spending in a two-sector dynamic general equilibrium model in which the reallocation of capital across sectors is costly. The two-sector model leads to a richer array of possible response...
The durability of health care treatment, the substantial technical change in health care treatment, and the prevalence of third-party payment interact to create substantial difficulty in measuring the price and output of health care. This paper provides a framework for analyzing the demand for health care taking into account these difficulties. It...
This paper studies the efficiency with which physical capital can be reallocated across sectors. It presents a model of a firm selling specialized capital in a thin resale market. The model predicts that the selling price depends not only on the sectoral specificity of capital, but also on the thinness of the market and the discount factor of the f...
This paper is prepared for the NBER-CRIW conference on health care prices. We are grateful to Praveen Kache and Laura Marburger for research assistance. Matthew Shapiro gratefully acknowledges the financial support of the National Institute on Aging through the Michigan Exploratory Center on the Demography of Aging and program project 2-P01 AG 1017...
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 q...
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 heterogeneit...
Estimating a Cardinal Attribute from Ordered Categorical Responses Subject to Noise This paper presents an estimate of the distribution of relative risk tolerance---a preference parameter quantifying individuals' behavior toward risk. The estimate is based on a new survey question about gambles over lifetime income. The preference parameter is trea...
A number of analysts have claimed recently that the consumer price index overstates the annual increase in the cost of living. This paper develops a framework for studying measurement problems in the consumer price index and systematically analyzes the available evidence concerning the magnitude of these problems. It concludes that the CPI overstat...
The Consumer Price Index does not take into account the fact that consumers alter the composition of their purchases in response to changes in relative prices. This substitution effect will cause the CPI to grow faster than the cost of living. This paper presents new estimates showing that this bias in the CPI averaged 0.3 percentage points per yea...
This paper provides explicit characteristics of those two-part tariffs which maximize profit and consumers' plus producer's surplus. The effect of consumption externalities (as in telecommunications systems) is then explored. The characterizations are in terms of elasticities of demand with respect to price, income, and the number of other customer...
In 1992, the income tax withholding tables were adjusted so that withholding was reduced. A typical worker received an extra $28.80 in take-home pay per month in March through December 1992, to be offset by a lower tax refund in 1993. The change in withholding amounted to 0.5 percent of GDP. President Bush, who proposed this change in his State of...
Romer and Romer (1989,1990,1992) identify dates where the Federal Reserve appears to have shifted its policy towards reducing the rate of inflation. This paper examines the economic context that drives this decision. It finds that the Fed appears to weigh the outlook for unemployment as well as that for inflation in making its decision about disinf...
This paper presents and implements statistical tests of stock market forecastability and volatility that are immune from the
severe statistical problems of earlier tests. It finds that although the null hypothesis of market efficiency is rejected,
the rejections are only marginal. The paper also shows how volatility tests and recent regression test...
Much of James Tobin's professional life has been devoted to studying the interrelationship between the goods and financial markets. His general equilibrium approaches stresses the interaction of the demand for financial assets with the decision to accumulate productive capital. His emphasis on q, the ratio of market value of assets to their replace...
What shocks account for the business cycle frequency and long run movements of output and prices? This paper addresses this question using the identifying assumption that only supply shocks, such as shocks to technology, oil prices, and labor supply affect output in the long run. Real and monetary aggregate demand shocks can affect output, but only...
Until recently, economists widely believed that economic activity had become less variable in the United States following the end of World War II. Challenging this belief, new research suggests that key historical time series are spuriously volatile, a finding that is highly controversial. Data from the stock market may provide a vehicle for resolv...
Was the Depression forecastable? After the crash, how long should it have taken contempo rary forecasters to realize how severe the downturn was going to be? These questions are addressed by studying the predictions of the Harv ard Economic Service and Yale's Irving Fisher during 1929 and the ear ly 1930s. The data assembled by the Harvard and Yale...
Non-competitive conduct can be assessed by estimating the size of the markup or Lerner index achieved in a market. The markup implies a price elasticity of demand faced by the representative firm. For a given markup, non-competitive conduct is greater the more elastic is the market elasticity of demand. The ratio of the firm's to the market elastic...
The interaction between the macroeconomy and asset markets is central to a variety of modern theories of the business cycle. Much recentwork emphasizes the joint nature of the consumption decision and the portfolio allocation decision. In this paper, we compare two formulations of the Capital Asset Pricing Model. The traditional CAPM suggests that...
Measured productivity is strongly procyclical. Real business cycle theories suggest that actual fluctuations in productivity are the source of fluctuations in aggregate output. Keynesian theories maintain that fluctuations in aggregate output come from shocks to aggregate demand. Keynesian theories appeal to labor hoarding or off the production fun...
Citations
... I argue this functional form is a reasonable starting point. For shocks to future income (t > t), it is the unique functional form that yields a proportionally declining marginal propensity to consume from future income, and also a marginal propensity to consume from permanent income of 1 (Gelman et al., 2016;Ralston et al., 2017). For shocks to past income (t < t), it imposes that households consume a constant fraction MPC of the temporary income shock in each period, and save the remainder. ...
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... Marchant et al. (2023) propose a Bayesian approach for entity resolution that links records to latent entities, validating their proposed approach via an extensive simulation study, comprehensive sensitivity analysis, and a real-data application. Patki and Shapiro (2023) present a method-verified in simulation-that can be implemented with standard off-the-shelf software for correcting linkage error-induced biases in variables by relying on instrumental variables that result from probabilistic record linkage. ...
Reference: Recent Advances in Data Integration
... Similarly, by collecting data on conditional probabilities of work given health, Giustinelli and Shapiro (2019) estimate the subjective ex ante treatment effect of health on retirement. 25 The chapters in this volume by Kézdi and Shapiro (2022) and Kosar and O'Dea (2022) provide additional discussion and references. ...
Reference: Survey Experiments on Economic Expectations
... This depreciation is not due to mechanical wear, as with an automobile, but is almost entirely due to obsolscence (i.e., the perceived discrepency between the technical capacity of an older computer and modern computers). Most companies and individuals do not replace computers because they are broken, but because they can no longer sufficiently run the latest software [7] or simply because there is a new model available in the market with greater capabilities. ...
... Tax refunds serve as a policy tool widely employed to stimulate economic development, attract investments, and enhance corporate competitiveness [33][34][35]. However, their impact on energy efficiency remains uncertain. ...
... The granularity and high frequency of big data make it useful for tracking business conditions in real time (Chetty et al., 2020). These features are both advantages when compared with more traditional sourcesdsuch as official government statisticsdthat usually are reported with a substantial lag and often offer only limited geographic and demographic detail (Abraham et al., 2020). However, with these advantages also come some potential pitfalls. ...
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... But while there have been full-fledged projects on mining scientific publications [72], scholarly document processing has arguably gained much traction lately [7,16], due to the ever growing need to efficiently access large amounts of published information, e.g., in the COVID-19 pandemic [24,89]. Most recent contributions range from scholarly specific search platforms [47] all the way through novel reading interfaces [27] and full-fledged infrastructures [11,44] leveraging advancements in data-driven AI, NLP and semantification techniques (e.g., document understanding and information extraction). ...