Working Papers
Applying the Foster, Haltiwanger, and Krizan (FHK) (2001) decomposition to plant-level manufacturing data from Chile and Korea, we find that a larger fraction of aggregate productivity growth is due to entry and exit during periods of fast GDP growth. Studies of other countries confirm this empirical relationship. To analyze this relationship, we develop a simple model of firm entry and exit based on Hopenhayn (1992) in which there are analytical expressions for the FHK decomposition. When we introduce reforms that reduce entry costs or reduce barriers to technology adoption into a calibrated model, we find that the entry and exit terms in the FHK decomposition become more important as GDP grows rapidly, just as in the data from Chile and Korea.

Presentations: FRB St. Louis, Autonoma de Barcelona, Midwest Macro (St. Louis), SED (Warsaw), SAET (Cambridge), Minnesota Workshop in Macro Theory, Universidad Torcuato Di Tella, Univ. of Notre Dame, LACEA (Santa Cruz), SAEE (Girona), SED (Toulouse), SAET (Rio), ITAM-PIER Conference on Macro, FRB Minneapolis, FRB Cleveland, Univ. of Houston, PUC (Rio), Macro Business CYCLE conference (UCSB), Univ. of Houston, Pontifical Catholic Univ., UT Austin, Western University, SED (Mexico City), Univ. de Montreal, Univ. of Georgia.
We study how the co-movement of inflation and economic activity affects real interest rates and the likelihood of debt crises. First, we show that for advanced economies, periods with procyclical inflation are associated with lower real interest rates. Procyclical inflation implies that nominal bonds pay out more in bad times, making them a good hedge against aggregate risk. However, such procyclicality also increases sovereign default risk when the economy deteriorates, since the government needs to make larger (real) payments. In order to evaluate both effects, we develop a model of sovereign default on domestic nominal debt with exogenous inflation risk and domestic risk-averse lenders. Countercyclical inflation is a substitute with default, while procyclical inflation is a complement with it, by increasing default incentives. In good times, when default is unlikely, procyclical inflation yields lower real rates. In bad times, as default becomes more material, procyclical inflation can magnify default risk and trigger an increase in real rates.

Presentations: SED (Seoul), European Central Bank, Midwest Macro Fall (Minnesota), FRB Minneapolis, Banque de France, Midwest Macro Fall (FIU), Federal Reserve Board, SED (Toulouse), Carnegie Mellon Univ., Barcelona GSE Summer Forum, GCER (Georgetown), NBER Summer Institute, UT A&M, FRB Cleveland, Univ. of Notre Dame, McMaster University, Macro System Conference (San Francisco Fed), FRB Atlanta, 
Macro Business CYCLE conference (UCSB), Midwest Macro Fall (Vanderbilt).

Works in Progress
  • "Household Portfolio Accounting," October, 2018, with Chris Telmer and Siqiang Yang.

    What accounts for the large heterogeneity in household portfolio composition in the United States? We consider a standard life-cycle model with labor income risk and portfolio choice (Cocco et al. 2005), augmented with a savings wedge that lowers the return on saving and a risky wedge that lowers the relative return on risky assets. Using U.S. survey data (2004-2016), we compute household-level wedges that rationalize the data, in the spirit of Chari et al. (2007). This paper has two main contributions. First, we use the wedges to guide plausible frictions that researchers should consider. Second, we analyze the extent to which household characteristics can account for the wedges. For example, we find that risky wedges are decreasing in age and education, smaller for self-employed households, home owners, and white households.

    Presentations: SED (Mexico City)
    , Midwest Macro Fall (Vanderbilt).
  • "On the Heterogeneous Welfare Gains and Losses from Trade," October, 2018, with Daniel Carroll.
How are the gains and losses from trade distributed across individuals within a country? First, we document that tradable goods constitute a larger fraction of expenditures for poor households. Second, we build a trade model with non-homothetic preferences---to generate the documented relationship between tradable expenditure shares, income, and wealth---and uninsurable income risk---to generate heterogeneity in income and wealth. While each of these extensions have been studied in isolation, we are the first to investigate their interaction in the trade literature. Finally, we use the calibrated model to quantify the differential welfare losses of transiting from free trade to autarky. We find that households in the lowest wealth decile experience welfare losses, measured by permanent consumption equivalents, that are 10 percent larger than those in the highest wealth decile. Moreover, households who are poor in wealth and income suffer welfare losses that are almost 20 percent larger than the average wealthy household.
  • "Optimal Bailouts in Banking and Sovereign Crises," with Zeynep Kabukcuoglu, Chengying Luo, and Cesar Sosa-Padilla.
We study the optimal design of bailout policies in the presence of banking and sovereign crises. First, we use European data to document that asset guarantees (i.e. conditional capital injections) are the most prevalent way in which sovereigns intervene in distressed banking sectors. Then, we build a model of sovereign borrowing with limited commitment where domestic banks hold government debt and also provide credit to the private sector. Shocks to the banks' capital can trigger banking crises and so the government may find it optimal to extend guarantees over those assets. Larger bailouts improve domestic financial markets and increase output, but they also imply larger fiscal needs for the government and may end up increasing default risk.
  • "The Stages of Economic Growth Revisited," with Daniela Costa, Timothy J. Kehoe, Gajendran Raveendranathan, Kim J. Ruhl.
Following Rostow (1960), we propose a theory for classifying countries according to their stages of growth and for analyzing the determinants of growth in and between the different stages. We conclude that, even if they have inefficient institutions and policies, poorer countries can achieve rapid growth by adopting the technologies and managerial practices of countries like the United States. Rostow (1960) hypothesized that taking off into economic growth was a difficult task for countries in the 19th Century, requiring major changes in institutions. In the 20th Century, however, as the United States and other advanced countries became richer because of improvements in technologies and managerial practices, it became easier for poor countries to take off into rapid growth by adopting some of these improvements. As they become richer, however, their growth rates will decline unless these countries have efficient institutions and policies. For many countries, this requires that they undertake serious institutional and policy reforms. Our analysis further suggests that world economic leadership is unlikely to be provided by less-developed countries like China.