International Economics:

In many countries, a sizable share of international trade is carried out by intermediaries. While large firms tend to export to foreign markets directly, smaller firms typically export via intermediaries (indirect exporting). I document a set of facts that characterize the dynamic nature of indirect exporting using firm-level data from Vietnam and develop a dynamic trade model with both direct and indirect exporting modes and customer accumulation. The model is calibrated to match the dynamic moments of the data. The calibration yields fixed costs of indirect exporting that are considerably lower than those of direct exporting, the variable costs of indirect exporting are higher, and demand for the indirectly exported products grows more slowly. I demonstrate that a dynamic model that excludes the indirect exporting channel will overstate the welfare gains associated with trade liberalization by a factor of two. The difference is primarily due to the variable costs of exporting being underestimated in the model that excludes indirect exporting. Furthermore, I show that accounting for the dynamic characteristics of indirect exporting is crucial: a static model with indirect exporting will understate the gains from trade liberalization by almost half.  

Does access to financial assistance make financially distressed nations more or less likely to default on their debt? In this paper, I construct a model of endogenous sovereign default with two sovereigns and a large number of international lenders. Both sovereigns borrow from international lenders. One sovereign provides financial loans to the other sovereign upon its request. During times of high debt levels and low output, these loans can help troubled sovereigns avoid default. However, the presence of financial assistance may have a perverse effect and make it more likely that the sovereign will default to avoid lower consumption in the future. The model predicts that the amount of outstanding debt and default incentives are mainly affected by (i) the quality of punishment technologies available to lenders and (ii) the behavior of lenders toward risk. If lenders have access to a better punishment technology, the borrower’s incentive to default decreases dramatically while borrowing levels increase. However, if the punishment technology is not strong enough, the effect of making financial assistance available on borrowing levels and default incentives is ambiguous.

In Retreat: Global Banks and International Trade (with Hyunju Lee)
In the wake of the Great Recession, international trade flows and the loan creation of international banks have retreated from their all-time highs. We ask whether the presence of financial frictions can explain the double downturns of exports and lending in international financial markets. Using firm-level data, we provide evidence that exporters borrow more and have higher leverage ratios compared to non-exporters. To evaluate the importance of financial frictions for international trade dynamics, we construct a model of heterogenous firms and financial intermediaries (banks) in which firms face financial constraints and banks are subject to collateral constraints. Exporters borrow working capital from banks, who, in turn, hold equity in the borrowing firms as collateral. When banks are subjected to a financial shock that tightens collateral constraints, exporters' production rapidly declines because of reduced financing from the banking sector. Debt-deflation mechanism further amplifies the downturn of firms and banks. As firms' production drops, their net wroth decreases, which further tightens the collateral constraints of the banks. We aim to quantify the amount of the fall in global exports that can be explained by the tightening of collateral constraints after the recession.  

Health Economics:

Macroeconomic Effects of Medicare (with Juan Carlos ConesaDaniela CostaTimothy KehoeVegard NygaardGajendran Raveendranathan, and Akshar Saxena)forthcoming in The Journal of the Economics of Ageing
This paper develops an overlapping generations model to study the macroeconomic effects of an unexpected elimination of Medicare. We find that a large share of the elderly respond by substituting Medicaid for Medicare. Consequently, the government saves only 46 cents for every dollar cut in Medicare spending. We argue that a comparison of steady states is insufficient to evaluate the welfare effects of the reform. In particular, we find lower ex-ante welfare gains from eliminating Medicare when we account for the costs of transition. Lastly, we find that a majority of the current population benefits from the reform but that aggregate welfare, measured as the dollar value of the sum of wealth equivalent variations, is higher with Medicare.

Aging, Rising Health Care Cost, and the Macroeconomy (with Juan Carlos ConesaDaniela CostaTimothy KehoeVegard NygaardGajendran Raveendranathan, and Akshar Saxena)
This paper incorporates the increasing patterns in the survival rates, share of college graduates, and the relative price of medical care in a general equilibrium overlapping generations model to study the implications of these changes on the U.S. macroeconomy and investigates policies that might mitigate the negative effects of aging in the U.S. We find that while the impact of the increase in the number of college graduates and survival probabilities can be mitigated by higher productivity of college graduates and compression morbidity, the effects of these changes on the macroeconomy are of second order compared to the effects of higher prices of medical care.