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.
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.
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.
  • "Household Portfolio Accounting," February, 2018, with Chris Telmer and Siqiang Yang. (draft and slides coming soon)
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 SCF (1989-2016), 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 hypothetical 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.

Works in Progress
  • "Optimal Bailouts in Banking and Sovereign Crises," with Zeynep Kabukcuoglu, Chengying Luo, and Cesar Sosa-Padilla.
  • "The Static and Dynamic effects of Collaboration," with Douglas Hanley and Jiyeon Kim.
  • "Job Flows across U.S. Regions," with Daniele Coen-Pirani and Yoonsoo Lee.