Andreas Fagereng

Journal of Political Economy 129(3) s. 703-756 Doi: https://doi.org/10.1086/712446

We show that family background matters significantly for children’s accumulation of wealth and investor behavior as adults, even when removing the genetic connection between children and the parents raising them. The analysis is made possible by linking Korean-born children who were adopted at infancy by Norwegian parents to a population panel data set with detailed information on wealth and socio-economic characteristics. The mechanism by which these Korean- Norwegian adoptees were assigned to adoptive families is known and effectively random. This mechanism allows us to estimate the causal effects from an adoptee being raised in one type of family versus another.

Econometrica 88(1) s. 115-170 Doi: https://doi.org/10.3982/ECTA14835

We provide a systematic analysis of the properties of individual returns to wealth using twelve years of population data from Norway’s administrative tax records. We document a number of novel results. First, individuals earn markedly different average returns on their net worth (a standard deviation of 22.1%) and on its components. Second, heterogeneity in returns does not arise merely from differences in the allocation of wealth between safe and risky assets: returns are heterogeneous even within narrow asset classes. Third, returns are positively correlated with wealth: moving from the 10th to the 90th percentile of the net worth distribution increases the return by 18 percentage points (and 10 percentage points if looking at net-of-tax returns). Fourth, individual wealth returns exhibit substantial persistence over time. We argue that while this persistence partly arises from stable differences in risk exposure and assets scale, it also reflects heterogeneity in sophistication and financial information, as well as entrepreneurial talent. Finally, wealth returns are correlated across generations. We discuss the implications of these findings for several strands of the wealth inequality debate.

Review of Economic Studies 85(1) s. 437-474 Doi: https://doi.org/10.1093/restud/rdx023

Assessing the importance of uninsurable wage risk for individual financial choices faces two challenges. First, the identification of the marginal effect requires a measure of at least one component of risk that cannot be diversified or avoided. Moreover, measures of uninsurable wage risk must vary over time to eliminate unobserved heterogeneity. Secondly, evaluating the economic significance of risk requires knowledge of the size of all the wage risk actually faced. Existing estimates are problematic because measures of wage risk fail to satisfy the “non-avoidability” requirement. This creates a downward bias, which is at the root of the small estimated effect of wage risk on portfolio choices. To tackle this problem we match panel data of workers and firms and use the variability in the profitability of the firm that is passed over to workers to obtain a measure of uninsurable risk. Using this measure to instrument total variability in individual earnings, we find that the marginal effect of uninsurable wage risk is much larger than estimates that ignore endogeneity. We bound the economic impact of risk and find that its overall effect is contained, not because its marginal effect is small but because its size is small. And the size of uninsurable wage risk is small because firms provide substantial wage insurance.

The American Economic Review 107(5) Doi: https://doi.org/10.1257/aer.p20171093

We propose a new approach to identify the strength of the precautionary motive and the extent of self-insurance in response to earnings risk based on Euler equation estimates. To address endogeneity problems, we use Norwegian administrative data and instrument consumption and earnings volatility with the variance of firm-specific shocks. The instrument is valid because firms pass some of their productivity shocks onto wages; moreover, for most workers, firm shocks are hard to avoid. Our estimates suggest a coefficient of relative prudence of 2, in a very plausible range.

Journal of Economic and Social Measurement Doi: https://doi.org/10.3233/JEM-170438

Journal of Finance 72(2) Doi: https://doi.org/10.1111/jofi.12484

Using error‐free data on life‐cycle portfolio allocations of a large sample of Norwegian households, we document a double adjustment as households age: a rebalancing of the portfolio composition away from stocks as they approach retirement and stock market exit after retirement. When structurally estimating an extended life‐cycle model, the parameter combination that best fits the data is one with a relatively large risk aversion, a small per‐period participation cost, and a yearly probability of a large stock market loss in line with the frequency of stock market crashes in Norway. This paper reexamines empirically the life‐cycle behavior of investors' portfolios, establishing novel features of the joint profiles of investors' participation in the stock market and the portfolio share invested in stocks. We estimate the parameters of a standard life‐cycle portfolio model with uninsurable labor income, extended to incorporate costly participation and a small probability of a stock market crash, and show that it can capture these features.

The American Economic Review 106(5) Doi: https://doi.org/10.1257/aer.p20161022

Lacking a long time series on the assets of the very wealthy, Saez and Zucman (2015) use US tax records to obtain estimates of wealth holdings by capitalizing asset income from tax returns. They document marked upward trends in wealth concentration. We use data on tax returns and actual wealth holdings from tax records for the whole Norwegian population to test the robustness of the methodology. We document that measures of wealth based on the capitalization approach can lead to misleading conclusions about the level and the dynamics of wealth inequality if returns are heterogeneous and even moderately correlated with wealth. JEL Classification: D31: Personal Income, Wealth, and Their Distributions

Journal of Money, Credit and Banking 48(2-3) Doi: https://doi.org/10.1111/jmcb.12301

We investigate the development of household labor income, financial wealth, and asset holdings over a 9-year period around job loss, using unique administrative panel data from Norway. Consistent with predictions from theory, the data show additional saving and a shift toward safer assets in the years leading up to unemployment, and depletion of savings after job loss. In the years after job loss, the households' after-tax labor income is reduced by about USD 12,500. Over the same time period, households deplete USD 3,000 of their financial assets, of which one third is accumulated prior to the job loss. This suggests that at least some households can foresee and prepare for the upcoming unemployment, which indicates that private savings can, to some extent, serve as a substitute for publicly provided unemployment insurance.

The Economic Journal 124(576) Doi: https://doi.org/10.1111/ecoj.12135

We identify the causal effect of lump-sum severance payments on non-employment duration in Norway by exploiting a discontinuity in eligibility at age 50. We find that a payment worth 1.2 months’ earnings at the median lowers the fraction re-employed after a year by about eight percentage points. This is what we would expect if liquidity constraints force unemployed workers to accept a job offer earlier than would be optimal. As further support for the liquidity story, we use data on wealth before unemployment to show that the effect of non-employment duration occurs for the non-wealthy only. Keywords: Unemployment, Optimal Unemployment Insurance, Liquidity Constraints, Severance Pay, Regression Discontinuity Design.

Samfunnsøkonomen 8

Applied Economics 42(7) s. 851-864 Doi: https://doi.org/10.1080/00036840802600491

During the last decades Norwegian exporters have–despite various forms of exchange rate targeting–faced a rather volatile exchange rate which may have influenced their behaviour. Recently, the shift to inflation targeting and a freely floating exchange rate has brought about an even more volatile exchange rate. We examine the causal link between export performance and exchange rate volatility across different monetary policy regimes within the cointegrated Vector Autoregression (VAR) framework using the implied conditional variance from a Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model as a measure of volatility. Although treating the volatility measure as either a stationary or a nonstationary variable in the VAR, we are not able to find any evidence suggesting that export performance has been significantly affected by exchange rate uncertainty. We find, however, that volatility changes proxied by blip dummies related to the monetary policy change from a fixed to a managed floating exchange rate and the Asian financial crises during the 1990s enter significantly in a dynamic model for export growth–in which the level of relative prices and world market demand together with the level of exports constitute a significant cointegration relationship. A forecasting exercise on the dynamic model rejects the hypothesis that increased exchange rate volatility in the wake of inflation targeting in the monetary policy has had a significant impact on export performance.

Seminar Bank of Spain

Brownbag Norges Bank

Seminar

Seminar Bonn University

ASSA 2023

Seminar Goethe University

Seminar

Seminar

Seminar

Seminar Unversitetet i Bergen

Banque de France

EEA-ESEM

Workshop at Norges Bank

Bank of Canada

Copenhagen University

European Economic Association

SI 2022 Conference on Research in Income and Wealth

Seminar Bank of Spain

Working Paper, Norges Bank 2021(5) s. 1-24

CEPR Micro and Macro Implications of Household Behaviour and Financial Decision-Making

Seminar Økonomisk Institutt Universitetet i Oslo

The Labor and Finance Online Seminar (LFOS) at Columbia GSB

Digital konferanse: "New was to measure consumption"

Seminar

Centre for Economic Policy Research. Discussion papers

We exploit a school reform that increased the length of compulsory schooling in Norway in the 1960s to study the causal effect of formal general education on returns on wealth (k-returns). OLS estimates reveal a strong, positive and statistically significant correlation between education and returns on individual net worth. This effect disappears in IV regressions, implying that general education has no causal effect on individual performance in capital markets, whose heterogeneity largely reflects non-acquired ability. On the contrary, we find that education causes higher returns in the labor market (l-returns). We speculate about possible rationales for this important asymmetry.

Discussion Papers

We provide a systematic analysis of the properties of individual returns to wealth using twelve years of population data from Norway’s administrative tax records. We document a number of novel results. First, individuals earn markedly different average returns on their net worth (a standard deviation of 8.6%) and on its components. Second, heterogeneity in returns does not arise merely from differences in the allocation of wealth between safe and risky assets: returns are heterogeneous even within narrow asset classes. Third, returns are positively correlated with wealth: moving from the 10th to the 90th percentile of the net worth distribution increases the return by 18 percentage points (and 10 percentage points if looking at net-of-tax returns). Fourth, individual wealth returns exhibit substantial persistence over time. We argue that while this persistence partly arises from stable differences in risk exposure and assets scale, it also reflects heterogeneity in sophistication and financial information, as well as entrepreneurial talent. Finally, wealth returns are correlated across generations. We discuss the implications of these findings for several strands of the wealth inequality debate.

NBER Working paper

NBER Summer Institute, EF&G Research Meeting

American Economic Association: Annual Meeting

Seminar

Annual Congress of the European Economic Association

Konferanse: New Consumption Data, Universitetet i København

Seminar

Statistisk sentralbyrå (SSB)

We provide a systematic analysis of the properties of individual returns to wealth using twelve years of population data from Norway’s administrative tax records. We document a number of novel results. First, individuals earn markedly different average returns on their net worth (a standard deviation of 8.6%) and on its components. Second, heterogeneity in returns does not arise merely from differences in the allocation of wealth between safe and risky assets: returns are heterogeneous even within narrow asset classes. Third, returns are positively correlated with wealth: moving from the 10th to the 90th percentile of the net worth distribution increases the return by 18 percentage points (and 10 percentage points if looking at net-of-tax returns). Fourth, individual wealth returns exhibit substantial persistence over time. We argue that while this persistence partly arises from stable differences in risk exposure and assets scale, it also reflects heterogeneity in sophistication and financial information, as well as entrepreneurial talent. Finally, wealth returns are correlated across generations. We discuss the implications of these findings for several strands of the wealth inequality debate.

Workshop on New Consumption Data

Santa Clare University research seminar

CEPR Workshop on Household Finance, Spring 2017

The New Macroeconomics of Aggregate Fluctuations and Stabilisation Policy

Annual Meeting of the European Economic Association

Society of Economic Dynamics Annual Meeting

NBER Summer Institute

Annual Conference of the International Association of Applied Econometrics

Econometric Society European Winter Meeting

Statistisk sentralbyrå (SSB)

Strong intergenerational correlations in wealth have fueled a long-standing debate over why children of wealthy parents tend to be well off themselves. We investigate the role of family background in determining children's wealth accumulation and investor behavior as adults. Our research design allows us to credibly control for genetic differences in abilities and preferences and to identify the effects of exogenous changes in specific dimensions of family background. The analysis is made possible by linking Korean-born children who were adopted at infancy by Norwegian parents to a population panel data set with detailed information on disaggregated wealth portfolios and socioeconomic characteristics. The mechanism by which these Korean-Norwegian adoptees were assigned to adoptive families is known and effectively random. We use the quasi-random assignment to estimate the causal effects from an adoptee being raised in one type of family versus another. Our findings show that family background matters significantly for children's accumulation of wealth and investor behavior as adults, even when removing the genetic connection between children and the parents raising them. In particular, adoptees raised by wealthy parents are more likely to be well off themselves, whereas adoptees' stock market participation and portfolio risk are increasing in the financial risk taking of their adoptive parents. These intergenerational causal links are not driven primarily by inter vivos transfers or bequests. The detailed nature of our data allows us to explore other mechanisms, assess the generalizability of the lessons from adoptees, and compare our findings to results from behavioral genetics decompositions.