Jonathan Heathcote

Understanding the US net foreign asset position Andrew Atkeson discusses changes in how much the United States is indebted to the rest of the world. "When we think of the US stock market booming, only like 60 percent of that is American wealth, and the other 40 percent is actually foreign wealth. So our net foreign asset position was deteriorating rapidly because the US stock market was booming. The thing that really struck us in the data is that our liabilities to foreigners, our net foreign asset position, was deteriorating rapidly because the US stock market was booming. And since foreigners owned a lot of US stocks, the value of their claims against us was booming, which for us means we owed them more money." - Andrew Atkeson

"When we think of the US stock market booming, only like 60 percent of that is American wealth, and the other 40 percent is actually foreign wealth. So our net foreign asset position was deteriorating rapidly because the US stock market was booming."
www.aeaweb.org/research/net...

The observed decline in labor’s share of corporate output, in conjunction with relatively weak corporate investment, generates a persistent rise in the ratio of corporate valuation relative to corporate earnings, from Andrew Atkeson, Jonathan Heathcote, and Fabrizio Perri www.nber.org/papers/w34748

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Reconciling Macroeconomics and Finance for the U.S. Corporate Sector: 1929 to Present Founded in 1920, the NBER is a private, non-profit, non-partisan organization dedicated to conducting economic research and to disseminating research findings among academics, public policy makers, an...

New working paper with Andy Atkeson and Fabrizio Perri. A thread 1/ www.nber.org/papers/w33459

Longer time series for perspective.

Then we ask whether the observed path for investment is consistent with the required return to capital investment being equal, date by date, to the expected return estimated from the finance model. We find that it is, given a plausible path for expected productivity growth. 8/

We compare the time series for expected returns from our finance model with a series for realized returns to capital estimated from our macro model (given time series for taxes, depreciation, labor’s share of value-added etc). The two track closely. 7/

Why do we find this? Part of the explanation is that our macro-model consistent firm income measure — free cash flow — looks quite different to dividends paid. At low frequency, valuations and free cash flow clearly co-move, pointing to a link between the two.6/

The paper’s first result is that our estimated asset pricing model interprets fluctuations in valuations quite differently. We find that fluctuations over the past 100 years mostly reflect fluctuations in long run expected free cash flow! (x in the plot below) 5/

On top of that, conventional wisdom in finance is that volatility in valuations mostly reflects fluctuations in the expected return that firm owners require (rather than time variation in expected cash flow). If firm owners’ required returns are volatile, why is their capital invested so smooth? 4/

Valuations are volatile, while the aggregate capital stock is smooth. That poses a challenge to reconciling macro and finance. 3/

We study valuations of US corporations from 1929 onward using 2 models: an asset pricing model, and a stochastic growth model that incorporates factorless income. We fit these models to data from the Integrated Macroeconomic Accounts, focusing on free cash flow as a measure of income. 2/

Reconciling Macroeconomics and Finance for the U.S. Corporate Sector: 1929 to Present Founded in 1920, the NBER is a private, non-profit, non-partisan organization dedicated to conducting economic research and to disseminating research findings among academics, public policy makers, an...

New working paper with Andy Atkeson and Fabrizio Perri. A thread 1/ www.nber.org/papers/w33459

The housing supply is not fixed in the short run. There are lots of people who could rent out second homes, ADUs, or put property on AirBnb, if they felt it would be worthwhile financially.

Relatedly:

I suspect low US taxes and agglomeration effects are big drivers of US dynamism. With respect specifically to Finland, Nokia screwed up.

They did have access to venture capital — ie some other rich people. But that seems to also exist to some extent in Scandinavia (I watched The Playlist!)

@fatihguvenen.bsky.social is arguing that entrepreneurs need to have skin in the game (i.e they need wealth so they can have an equity stake). That makes sense But many of the richest Americans are self-made — they built big businesses without much initial wealth.

Week 2: This week's theory paper in focus is a brilliant conceptual puzzle piece by Thomas & Worrall (1990). What are the implications of risk sharing/insurance provision over time when income is private? They have a surprising answer: it necessarily leads to long-term impoverishment.

In economics, editors, referees, and authors often behave as if a published paper should reflect some kind of authoritative consensus.

As a result, valuable debate happens in secret, and the resulting paper is an opaque compromise with anonymous co-authors called referees.

1/

And what is the answer?

Macro without macro.

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Economist/Senior Economist/Economic Advisor - Microeconomics Team Company Federal Reserve Bank of Chicago The Economic Research Department of the Federal Reserve Bank of Chicago invites applications for the Economist/Senior Economist/Economic Advisor positions on th...

Chicago Fed is hiring in our micro group! The ad is not yet on JOE but see this link. 3+ years of experience. Don't need rec letters but do need to list 3 references: rb.wd5.myworkdayjobs.com/en-US/FRS/jo...

I don’t quite understand the table. If I look at highly selective colleges, enrollment for every sub-group declined by more than enrollment for all. Perhaps there is a ‘did not declare race’ group, whose enrollment rose.

Submit your papers to the next @cepr.org Public Economics Annual Symposium, taking place in Cologne on June 5-6, 2025. Co-organized with @sigginho.bsky.social and Johannes Spinnewijn, keynotes by Cecile Gaubert and @omzidar.bsky.social!

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Remember when "Ferris Bueller's Day Off" tried to teach us about tariffs and no one was paying attention

I will continue to update this -- let me know if you want in! (or out!)

Some tariffs are worse than others My piece in the Financial Times and more thoughts on tariffs

A little more context on my tariff argument, including why "success" is hard to measure www.economicforces.xyz/p/some-tarif...