Alisdair McKay

Curriculum Vitae

Working Papers:

• "The Regulation of Retail Financial Markets with Uninformed Consumers."
  Latest draft: October 7, 2009.
  
  Abstract:
  In a model in which consumers of financial services must pay an information cost or otherwise exert some effort to make a well-informed choice, regulations that attempt to suppress the supply of low-quality financial offers can have perverse effects as they blunt the incentives for consumers to become informed. In contrast, policies that strive to promote information seeking on the part of consumers improve the quality of offered contracts and improve welfare without the potential for these perverse effects to occur.
  
  
  
• "Household Saving Behavior, Wealth Accumulation and Social Security Privatization."
  Latest draft: November 11, 2008.
  
  Abstract:
  Empirical studies of household financial decisions suggest that households are heterogeneous in their abilities to make sound financial choices. In this paper, I develop a general equilibrium model of household saving behavior in which the quality of financial decisions is endogenously determined by the incentives to exert effort in learning about financial opportunities. The model embeds an equilibrium search setting in the asset market of a heterogeneous-agent savings model. The model's predictions for asset market participation, portfolio returns and financial planning behavior are consistent with the data on average and across households.

  I use the model to analyze a partial privatization of the social security system. After privatization, households have larger portfolios and stronger incentives to search for assets. The increase in search effort increases the participation rate and results in a more competitive asset market. However, privatization weakens social security's role in insuring households against bad financial outcomes. When the cost of the transition is included, privatization leads to a 1.3% welfare loss in consumption equivalents. In the same model without the search friction this figure is 1.0%.
  

Published Papers:

• (with Ricardo Reis) "The Brevity and Violence of Contractions and Expansions."
  Journal of Monetary Economics, Volume 55, Issue 4, May 2008.
  
  Abstract:
  Early studies of business cycles argued that contractions in economic activity were briefer (shorter) and more violent (rapid) than expansions. This paper systematically investigates this claim and in the process discovers a robust new business cycle fact: contractions in employment are briefer and more violent than expansions but we cannot reject the null of equal brevity and violence for expansions and contractions in output. The difference arises because employment typically lags output around peaks but they coincide in their troughs. We discuss the performance of existing business cycle models in accounting for this fact, and conclude that none can fully account for it. We then show that a business cycle model with asymmetric adjustment costs on employment and a choice of when to scrap old technologies can account for the business cycle fact both qualitatively and quantitatively.
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