Research
Working Papers
Complementarity, Heterogeneity, and Multipliers: Utility for HANK with Florin Bilbiie and Sean Lavender
Abstract:Complementarity between consumption and work is essential for heterogeneous-agent models’ ability to generate realistic multiplier effects from aggregate demand shocks, while avoiding puzzling predictions. We show how parameterizing complementarity — in the spirit of Frisch’s “utility acceleration”— separately from income effects is necessary to achieve both. HANK models equipped with such complementarity deliver plausible fiscal multipliers and simultaneously resolve two key challenges in the literature: a “trilemma” of matching marginal propensities to earn (MPEs) and to consume (MPCs), and a Catch-22 “dilemma” of resolving the forward guidance puzzle. We establish these results analytically in a tractable HANK framework and confirm them in a calibrated quantitative HANK model. Standard utility functions, however, constrain either complementarity or income effects — or both — thereby forcing multipliers to depend exclusively on one or the other. We introduce two flexible parametric forms that allow arbitrary, independent calibration of complementarity and income effects: a quasi-separable “GHH-CRRA” utility and a “CCRRA” (constant complementarity and relative risk aversion) specification.
Skill Biased Reallocation draft
Abstract: Workers displaced by the reallocation of labor demand across industries suffer persistent earnings losses, in large part due to higher unemployment risk. This paper quantifies the aggregate unemployment implications of a reallocation of labor demand. I develop a search and matching model with multiple industries and industry specific skill that is calibrated to the US economy. In the model a reallocation shock leads to up to a 0.5 percentage points rise in unemployment. The combination of industry specific skill and imperfect substitutability between workers of different skill levels are key to this result.
The Role of Demographics in Cross-Cohort Lifetime Income Differences with Laura Murphy
Abstract: We study how demographic changes in the US affect men’s lifetime incomes through career spillovers. American men’s lifetime median incomes have followed a hump shaped pattern: rising with each cohort entering the labour market from the late 1950s until the 1970s, and subsequently falling. The start of decline coincides with the entry of the baby boomers who represent a structural break in the size of incoming cohorts. The availability of higher-compensated management tasks increases with the number of lower ranked (younger) workers. So, a larger cohort of workers will increase (decrease) the opportunities of their predecessors(successors), in contrast to the symmetric effect predicted by traditional models. We utilize a simple model to show cross-cohort differences in promotions to higher rank jobs can account for the shape of lifetime median incomes observed in the data. We also show the promotion mechanism is consistent with several other cross-cohort empirical facts.
Heterogenous Firms and the Dynamics of Investment with Matias Bayas-Erazo
Updated Draft Coming Soon
Abstract: We show that standard heterogeneous firm models of investment feature investment responses that decrease steadily after a shock and a positive relationship between the magnitude of the initial response to a shock and the speed of convergence of capital. This is inconsistent with the hump shaped responses found in the data. To resolve this tension we add stochastic time to build to the standard model. This feature generates hump shaped responses and enables the model to match micro moments of investment as well as the response dynamics.
Capital, Intangibles, and Financial Frictions with Joao Monterio
Abstract: How do financial frictions shape firms’ investment in intangible capital? We show that financial constraints distort firms’ input choices, leading to systematic underinvestment in intangible assets. Exploiting an investment subsidy in Portugal that lowered the cost of both physical and intangible capital while keeping their relative price unchanged, we find that treated firms reduced their capital-to-intangible ratio by 12 percent, with larger effects for financially constrained firms. The distribution of treatment effects declines sharply across percentiles - firms with higher initial capital-to-intangible ratios adjust the most - revealing the signature of a binding financial wedge. Going beyond average effects, we recover the entire cross-sectional distribution of wedges between the marginal rate of technical substitution and the price ratio. The recovered distribution corresponds to the least distorted economy consistent with the data, showing that only a small share of firms are unconstrained while roughly one-quarter face wedges exceeding twenty percent - providing a direct quantitative map of financial distortions in production.