The textbook permanent-income hypothesis predicts that the level of consumption is proportional to the level of permanent income, while, in the data, the elasticity of consumption to permanent income appears to be far below one. In this paper, I provide evidence for a novel theory for this consumption under-response to permanent income based on consumption commitments -- hard-to-adjust consumption choices that resemble long-term commitments. Empirically, I document four main new facts that support the theory: (a) the consumption elasticity to permanent income is larger for younger households, (b) it depends on past income trajectories, and (c) it becomes larger after households adjust their commitments; furthermore, I show that (d) those households that have "under-responded" to their income growth skew spending away from hard-to-adjust goods (notably shelter). These facts are evidence in favor of household "lock-in" to past consumption choices. Quantitatively, I show that consumption commitments are necessary for life-cycle models to account for all the documented facts.

Job losses negatively affect children's labor market outcomes through decreases in family income. Since unemployed parents have more time available to invest in their children, the effects of parental unemployment on children’s future outcomes are ambiguous after accounting for this drop in income. Using NLSY79 and NLSY79-CYA, we show that the total amount of time a mother spends unemployed throughout her child's childhood has direct negative effects on the child’s future wage and employment probability, even conditional on family income. By contrasting these results with the weaker effects of mothers being out of the labor force and instrumenting for involuntary maternal non-employment, we suggest that the effects might be causal. We further show that maternal unemployment negatively impacts the quality of the home environment and that unemployed mothers allocate very little additional time to educating their children.

We study the inflation target level decision under a high government debt burden. Lower targets allow for lower on-target inflation but increase the temptation to use extra inflation to generate fiscal revenue. We model this trade-off in an economy with an altruistic policymaker choosing debt and public expenditure on behalf of private agents whom finance expenditures and form inflation expectations rationally. For low debt levels, the inflation target is credible and always delivered. For high debt, the target is not credible and never delivered. In-between, the target may be delivered or not, leading to above-target expectations and expensive debt rollovers. We show that rollover costs are lower when the inflation target is higher. Our model implies that the optimal inflation target depends on debt levels.

We estimate cyclicality in labor's user cost allowing for cyclical fluctuations in the quality of worker-firm matches and wages that are smoothed within employment matches. To do so, we exploit a match's long-run wage to control for its quality. Using NLSY data for 1980 to 2019, we identify three channels by which recessions affect user cost: It lowers the new-hire wage; it lowers wages going forward in the match; but it also results in higher subsequent separations. All totaled, we find that labor's user cost is highly procyclical, increasing by more than 4% for a 1 pp decline in unemployment.

We document new facts about the behavior of total annual hours worked over the life cycle using NLSY79 data and show which ingredients life-cycle models need to explain these facts. In the data, both the intensive and extensive margins of labor supply are equally important, each contributing close to 50\% to the life-cycle growth in hours. We propose a life-cycle model that nests different theories used to explain the hours' profile and calibrate it to reproduce our empirical evidence. Both human capital accumulation and a job ladder are needed to account for the data patterns, while versions with only one ingredient fail to reproduce labor supply behavior. Through counterfactual exercises, we find that human capital accumulation drives wage growth in the early stages of a worker's career, while an interaction of job search and job-switching costs drives hours growth.