Emerging market business cycles exhibit strongly countercyclical current accounts, consumption volatility that exceeds income volatility, and “sudden stops†in capital inflows. These features contrast with developed small open economies. Nevertheless, we show that a standard model characterizes both types of markets. Motivated by the frequent policy regime switches observed in emerging markets, our premise is that these economies are subject to substantial volatility in trend growth. Our methodology exploits the information in consumption and net exports to identify the persistence of productivity. We find that shocks to trend growth—rather than transitory fluctuations around a stable trend—are the primary source of fluctuations in emerging markets. The key features of emerging market business cycles are then shown to be consistent with this underlying income process in an otherwise standard equilibrium model.

We revisit two well-known facts regarding life cycle expenditures: the “hump”-shaped profile of nondurable expenditures and the increase in cross-household consumption inequality. We document that the behavior of total nondurables masks surprising heterogeneity in the life cycle profile of individual consumption subcomponents. We provide evidence that the categories driving life cycle consumption either are inputs into market work or are amenable to home production. Using a quantitative model, we document that the disaggregated life cycle consumption profiles imply a level of uninsurable permanent income risk that is substantially lower than that implied by a model using a composite consumption good.

Previous authors have documented a dramatic decline in food expenditures at the time of retirement. We show that this is matched by an equally dramatic rise in time spent shopping for and preparing meals. Using a novel data set that collects detailed food diaries for a large cross section of U.S. households, we show that neither the quality nor the quantity of food intake deteriorates with retirement status. We also show that unemployed households experience a decline in food expenditure and food consumption commensurate with the impact of job displacement on permanent income. These results highlight how direct measures of consumption distinguish between anticipated and unanticipated shocks to income whereas measures of expenditures obscure the distinction.

Lack of commitment at the time of auction to repayment of imminently maturing debt can generate a run on debt and immediate default. We show that the same lack of commitment leads to other possible self-fulfilling crises, including issuance of more debt at depressed prices, or a “sudden stop” (forced austerity) in which debt issuance is sharply curtailed. Both outcomes stem from the government's incentive to eliminate uncertainty about imminent payments at the time of auction by altering the level of debt issuance. These outcomes generate a large increase in spread volatility in both a 1-period and a multiperiod quantitative debt model.

We propose a methodology exploiting time diary data and “leisure Engel curves” to infer quality changes across leisure activities and measure the effects on the marginal return to leisure. We study leisure returns for men aged 21–30, who have shifted leisure toward video gaming and recreational computing and have had larger market work hour declines than older men or women since 2004. We show that recreational computing is distinctly a leisure luxury for younger men. By increasing the value of time, innovations to this leisure technology have lowered young men's work hours by 2%, or much of their work hours decline compared to older men's.