Research

Publications

Working Papers
This paper analyzes the effects of the Great Recession on different generations. While older generations suffered the largest decline in wealth due to the collapse in asset prices, younger generations suffered the largest decline in labor income. Potentially, the young may benefit from the purchase of cheaper assets. To analyze the impact of these channels, I construct an overlapping-generations model with borrowing constraints in which households choose a portfolio of risky and risk-free assets. In response to shocks to labor income and asset markets resembling the Great Recession, young risky asset holders suffer the largest welfare losses, equivalent to a 37 percent reduction in one-period consumption.
Using data from Chile and Korea, we find that a larger fraction of aggregate productivity growth is due to firm entry and exit during fast-growth episodes compared to slow-growth episodes. Studies of other countries confirm this empirical relationship. We develop a model of endogenous firm entry and exit based on Hopenhayn (1992). Firms enter with efficiencies drawn from a distribution whose mean grows over time. After entering, a firm’s efficiency grows with age. In the calibrated model, reducing entry costs or barriers to technology adoption generates the pattern we document in the data. Firm turnover is crucial for rapid productivity growth.
We show that the co-movement of inflation and domestic consumption growth affects real interest rates and the likelihood of debt crises. In particular, a positive co-movement of inflation and consumption lowers risk premia as it makes returns on nominal domestic government debt negatively correlated with domestic consumption. However, such procyclicality also generates default risk since the debt becomes more risky for the government when the economy deteriorates. We calibrate a model of sovereign default on domestic nominal debt, with exogenous inflation risk and domestic risk averse agents, to assess these joint equilibrium properties of nominal debt, default, and interest rates. Compared to the countercyclical inflation economy, the procyclical inflation economy enjoys a sizable "inflation procyclicality discount'" as it features lower real interest rates despite higher default risk. However, in bad times, the procyclical economy faces higher real interest rates due to sharper default risk spikes. These findings are consistent with the evidence across advanced economies and have implications for the debate on the secular decline in real interest rates.

Works in Progress
  • "Bankruptcy, Contagion, and Takeovers," with Daniele Coen-Pirani and Siqiang Yang.
  • "Banking and Sovereign Crises," with Zeynep Kabukcuoglu, Chengying Luo, and Cesar Sosa-Padilla.
  • "Trade, Innovation, Inequality, and Growth," with Douglas Hanley and Lhakpa Sherpa.