Long-Term Finance and Investment with Frictional Asset Markets
American Economic Journal: Macroeconomics, 2021, vol. 13(4) paper
Trading frictions in financial markets lead to a liquidity spread which increases with maturity and generates an upward sloping yield curve. Hence, trading frictions induce firms to borrow and invest at shorter horizons. Reductions in trading frictions—a new channel of financial development—can promote economic development. We use insights from the theory to measure the slope of liquidity spreads in the data.
Scarring Body and Mind: The Long-Term Belief-Scarring Effects of COVID-19
with Laura Veldkamp and Venky Venkateswaran, 2020 Jackson Hole Economic Policy Symposium Proceedings paper
The largest economic cost of the COVID-19 pandemic could arise if it changed behavior long after the immediate health crisis is resolved. We show how to quantify the extent of such belief changes and determine their impact on future economic outcomes.
The Tail that Wags the Economy: Belief-Driven Business Cycles and Persistent Stagnation
with Laura Veldkamp and Venky Venkateswaran, Journal of Political Economy, 2020, vol. 128(8) paper
The great recession has been more persistent than others because observing an unlikely event led us to re-assess the probability of tail events. This change in beliefs endures long after the event itself has passed.
Explaining Intergenerational Mobility: The Role of Fertility and Family Transfers
with Diego Daruich, Review of Economics Dynamics, 2020, vol. 36 paper
Poor families have more children and transfer fewer resources to them. This suggests that family decisions about fertility and transfers can dampen intergenerational mobility. The model, estimated to the US in the 2000s, implies that a counterfactual flat income-fertility profile would reduce intergenerational persistence by about 7%.
The Tail that Keeps the Riskless Rate Low
with Laura Veldkamp and Venky Venkateswaran, NBER Macroeconomics Annual 2018, vol. 33 paper
The 2008 financial crisis was an unlikely event led us to re-assess the probability of tail events. The knowledge that such an event can happen raises the value of riskless assets for many years.
Investment and Bilateral Insurance
with Emilio Espino and Juan Sanchez, Journal of Economic Theory 2018, vol. 176 paper
Private information may limit insurance possibilities when two agents get together to pool idiosyncratic risk. However, if there is capital accumulation, bilateral insurance possibilities improve because misreporting distorts investment.
Macroeconomic Implications of Uniform Pricing
with Diego Daruich Working paper R&R American Economic Journal: Macroeconomics
We introduce novel data from Argentina and show that there is uniform pricing (chains set the same prices across stores both within and across regions), and prices react relatively little to local conditions. We build a model to understand the macroeconomic implications of uniform pricing. Our key finding is that consumption aggregate elasticities tend to be smaller than local elasticities, as prices react more to aggregate conditions when prices are set uniformly across regions.
Domestic Policies and Sovereign Default
with Emilio Espino, Fernando M. Martin and Juan M. Sanchez Working paper
Incorporate monetary and fiscal policies in a model of sovereign default to study the response of emerging markets to terms-of-trade shocks.
Credit and Liquidity Policies during Large Crises
with Mahdi Ebsim and Migel Faria e Castro Working paper
We study the evolution of firm financials during two large crises: the Great Financial Crisis (GFC) and the COVID-19 pandemic. While the two crises featured similar increases in corporate spreads, corporate debt and liquid asset holdings moved in opposite directions.The micro-data reveal that firm leverage was a more important predictor of credit spreads during the GFC, but that firm liquidity was more important during the pandemic. We build a model to study the differential response of firms’ borrowing conditions and investment to large aggregate shocks, and how it depends on two key characteristics: leverage and liquidity. We then study how different credit and liquidity policies may be more or less appropriate responses to different exogenous shocks.
Can the cure kill the patient? Corporate credit interventions and debt overhang by Nicolas Crouzet and Fabrice Tourre, Barcelona Summer Forum 2021 Discussion
Credit Shocks and Equilibrium Dynamics in Consumer Durable Goods Markets by Alessandro Gavazza and Andrea Lanteri, Southern Economic Association November 2018, Discussion
Beauty Contests and the Term Structure by Martin Ellison and Andreas Tischbirek, Expectations in Dynamic Macroeconomics Model August 2018, Discussion