Effects of Health Care Policy Uncertainty on Households' Portfolio Choice
72 Pages Posted: 17 Jan 2022 Last revised: 3 May 2023
Date Written: January 3, 2022
Abstract
This paper develops a nonparametric identification approach for causal effects of an endogenous macroeconomic variable on microeconomic outcomes. The key assumption is the existence of an exogenous variable that shifts responsiveness to the variable of interest without shifting responsiveness to other macroeconomic time series. We apply the approach to study the effect of health care policy uncertainty (HCPU) on households’ portfolio choice using health shocks to capture cross-sectional heterogeneity. Under the additional assumption of risk averse agents, our approach provides an informative bound on the average causal effect of HCPU. The empirical results highlight HCPU as an important determinant of households’ financial behavior, and showcase substantial heterogeneity in HCPU effects across varying unexpected changes to health.
Keywords: Causal Inference, Partial Identification, Heterogeneous Effects, Health and Retirement Study (HRS), Household Finance
JEL Classification: D14, D80, I18, C21, C14
Suggested Citation: Suggested Citation