Research

Publications

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).
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.

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).

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

    American households vary largely in their portfolio composition of safe and risky 
    assets, defined as stocks, real estate, and non-corporate business. 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 the Survey of Consumer Finances (19892016), we compute household-level wedges that rationalize the data, in the spirit of Chari et al. (2007). This paper has three 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 and home owners, and larger for male and black households. Finally, in a counterfactual exercise of reducing the wedges, as in Hsieh and Klenow (2009), we investigate the changes to wealth levels and wealth inequality in the U.S.

    Presentations: SED (Mexico City).
  • "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.