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  • 1.
    Broer, Tobias
    Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
    Domestic or global imbalances?: Rising income risk and the fall in the US current account2014In: Journal of Monetary Economics, ISSN 0304-3932, E-ISSN 1873-1295, Vol. 64, p. 47-67Article in journal (Refereed)
    Abstract [en]

    When default leads to exclusion from financial markets, the implied loss of consumption smoothing opportunities is more costly when income volatility is high. A rise in income risk thus makes default less attractive, allowing creditors to relax borrowing limits. I show how, in an open economy, this endogenous financial deepening may reduce aggregate foreign assets in response to a rise in individual income risk, against the precautionary savings intuition. Conditions for this depend on whether default constrains complete or uncontingent contracts. The post-1980 rise in US household income risk strongly reduces foreign assets when domestic markets are complete or world interest rates low.

  • 2.
    Broer, Tobias
    Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies. Centre for Economic Policy Research, UK.
    Securitization bubbles: Structured finance with disagreement about default risk2018In: Journal of Financial Economics, ISSN 0304-405X, E-ISSN 1879-2774, Vol. 127, no 3, p. 505-518Article in journal (Refereed)
    Abstract [en]

    An additional reason for the structured finance boom of the 2000s may have been disagreement about default risk of collateral assets. When risk-neutral investors disagree about average default probabilities, structuring collateral cash flow raises prices by concentrating optimists' demand on risky tranches. With disagreement about default correlation, low-correlation investors believe in diversification and pay high prices for senior tranches they deem riskless. High-correlation investors value junior tranches they expect to pay whenever aggregate conditions are good. Risk aversion and short selling through credit default swaps reduce the prices of both pass-through and structured securitizations but may increase the return to tranching.

  • 3.
    Broer, Tobias
    Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
    The home bias of the poor: Foreign asset portfolios across the wealth distribution2017In: European Economic Review, ISSN 0014-2921, E-ISSN 1873-572X, Vol. 92, p. 74-91Article in journal (Refereed)
    Abstract [en]

    This paper documents how the share of foreign stocks in US household portfolios rises with the ratio of financial wealth to non-financial income. This is both because wealthier households are more likely to participate in foreign asset markets, and because portfolio shares of participants increase with financial wealth but decrease with non-financial income. A simple, standard two-country general equilibrium model shows that hedging of terms of trade movements and non-financial income risk produces non-trivial heterogeneity in portfolios across the wealth and income distribution within countries that is qualitatively in line with this evidence.

  • 4.
    Broer, Tobias
    Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
    The Wrong Shape of Insurance?: What Cross-Sectional Distributions Tell Us about Models of Consumption Smoothing2013In: American Economic Journal: Macroeconomics, ISSN 1945-7707, E-ISSN 1945-7715, Vol. 5, no 4, p. 107-140Article in journal (Refereed)
    Abstract [en]

    This paper shows how two standard models of consumption-risk-sharing-self-insurance through borrowing and saving and limited commitment to insurance contracts-replicate similarly well the standard, second-moment measures of insurance observed in US micro data. A nonparametric analysis, however, reveals strongly contrasting and counterfactual joint distributions of consumption, income and wealth. Method of moments estimation shows how measurement error in consumption eliminates excessive skewness and smoothness of consumption growth. Moreover, counterfactual nonlinearities disappear at high-estimated risk aversion under self-insurance, but are a robust feature of limited commitment. Its shape of insurance thus argues in favor of the self-insurance model.

  • 5.
    Broer, Tobias
    et al.
    Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies. CEPR, United Kingdom.
    Kapicka, Marek
    Klein, Paul
    Stockholm University, Faculty of Social Sciences, Department of Economics.
    Consumption risk sharing with private information and limited enforcement2017In: Review of economic dynamics (Print), ISSN 1094-2025, E-ISSN 1096-6099, Vol. 23, p. 170-190Article in journal (Refereed)
    Abstract [en]

    We study consumption risk sharing when individual income shocks are persistent and not publicly observable, and individuals can default on contracts at the price of financial autarky. We find that, in contrast to a model where the only friction is limited enforcement, our model has observable implications that are similar to those of an Aiyagari (1994) self-insurance model and therefore broadly consistent with empirical observations. However, some of the implied effects of changes in policy or the economic environment are noticeably different in our model compared to self-insurance.

  • 6.
    Broer, Tobias
    et al.
    Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
    Kapicka, Marek
    Klein, Paul
    Simon Fraser University, Canada .
    Consumption Risk Sharing with Private Information and Limited Enforcement2015Report (Other academic)
    Abstract [en]

    In this paper, we study consumption risk sharing when individual income shocks are persistent and not publicly observable, and individuals can default on contracts at the price of financial autarky. We find that, in contrast to a model where the only friction is limited enforcement, our model has observable implications that are similar to those of an Aiyagari (1994) self-insurance model and therefore broadly consistent with empirical observations. However, some of the implied effects of changes in policy or the economic environment are noticeably different in our model compared to self-insurance.

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