The Risk-Premium Channel of Uncertainty: Implications for Unemployment and Inflation (with Lukas B. Freund and Pontus Rendahl) [replication codes]
- Review of Economic Dynamics, Volume 51, December 2023, Pages 117-137

This paper studies the role of macroeconomic uncertainty in a search-and-matching framework with risk-averse households. Heightened uncertainty about future productivity reduces current economic activity even in the absence of nominal rigidities. A risk-premium mechanism accounts for this result. As future asset prices become more volatile and covary more positively with aggregate consumption, the risk premium rises in the present. The associated downward pressure on current asset values lowers firm entry, making it harder for workers to find jobs and reducing supply. With nominal rigidities the recession is exacerbated, as a more uncertain future reinforces households’ precautionary behavior, which causes demand to contract. Counterfactual analyses using a calibrated model imply that unemployment would rise by less than half as much absent the risk-premium channel. The presence of this mechanism implies that uncertainty shocks are less deflationary than regular demand shocks, nor can they be fully neutralized by monetary policy.

Working papers

Striking While the Iron Is Cold: Fragility after a Surge of Lumpy Investments [appendix] [RePEc]

This paper studies the endogenous state dependence of the aggregate investment dynamics stemming from synchronized lumpy investments at the firm level. I develop a heterogeneous-firm real business cycle model where the semi-elasticities of large and small firms’ investments are matched with the empirical estimates. In the model, following a negative TFP shock, the timings of large firms’ lumpy investments are persistently synchronized due to the low sensitivity to the general equilibrium effect, leading to a surge of lumpy investments. After the surge, TFP-induced recessions are especially severe, and the semi-elasticity of the aggregate investment drops significantly.

Job market paper version: link

A Dynamically Consistent Global Nonlinear Solution Method in the Sequence Space and Applications
[appendix] [sample codes] [slides] [RePEc]

This paper develops a highly accurate and efficient global nonlinear solution method for dynamic stochastic general equilibrium models in the sequence space. The method updates the predicted equilibrium path using the whole sequence of realized allocations in the past iteration based on the accurate conditional expectation in each period, sharply satisfying the dynamic consistency. Neither a parametric law of motion nor parametrized expectation is necessary for the implementation. The method applies to a wide range of models with and without micro-level heterogeneity. Moreover, it allows theoretical characterization of the conditions under which a sufficient statistic approach can be used for complex aggregate states, including distributions. Despite its simple implementation, the computation is highly efficient, bypassing fixed-point problems in each iteration, including non-trivial market clearing conditions. 

Top Income Inequality and the Business Cycle

This paper studies how the pass-through businesses of top income earners affect the aggregate fluctuations in the U.S. economy. I develop a heterogeneous-household real business cycle model with endogenous labor supply and occupational choice and calibrate the model to capture the observed top income inequality. Compared to the counterfactual economy with the factor-income-driven top income inequality, the economy in the baseline model features the aggregate fluctuations that outperform in explaining the recent changes in the business cycle: 1) lower volatility of aggregate output and 2) stronger negative correlation between labor hour and productivity. Heterogeneous labor demand sensitivities to TFP shocks between pass-through businesses and C-corporations build the core of the aggregate dynamics, and the aggregate employment dynamics display substantial nonlinearity due to this heterogeneity.

Disclosure Regulation, Intangible Capital and the Disappearance of Public Firms (with Sara Casella and Sergio Villalvazo) [appendix] [feds working paper] [slides]

Since the mid-1990s, the number of listed firms in the U.S. has halved, and their public disclosure has become opaquer. To explain these trends, we develop a general equilibrium model where the choices of going public or private and the transparency of voluntary disclosure are characterized analytically. In the equilibrium, the stock market with directed search and the private equity market with random search co-exist. According to the estimation, stricter disclosure regulation and increased intangible capital share are the key drivers of the observed patterns. Lastly, we characterize a policymaker’s trade-off between welfare and productivity and analyze the optimal policy.

Bridging Micro and Macro Production Functions: The Fiscal Multiplier of Infrastructure Investment (with Minsu Chang) [appendix]

This paper investigates the fiscal multiplier of infrastructure investment using an estimated heterogeneous-firm general equilibrium model. We show theoretically and quantitatively that the firm-level non-rivalry in infrastructure usage drives a significant discrepancy between the estimated input elasticities at the firm level and the state level. In addition, we link our firm-level production function to a canonical production function in a representative-agent framework (Baxter and King, 1993). The quantitative findings indicate a fiscal multiplier of approximately 1.09 over a 2-year horizon, suggesting a moderate net economic benefit from infrastructure investment, which is significantly higher than the representative-agent model prediction. This is due to the low sensitivity of the firm-level investment to the general equilibrium effect, leading to a dampened crowding out.

Work in Progress

Rising Intangibles and Technology-Biased Technical Change (with Jesús Fernández-Villaverde

An Analytic Theory of Frictional Firm Dynamics (with Vasco M. Carvalho

Labor Market Impact of M&A and Skill Complementarity (with Minji Bang)

From Spreads to Spirals: How Financial Frictions Drive Lumpy Investments (with Miguel H. Ferreira and Timo Haber

State-dependent Nonlinear Search and Matching (with Philip Schnattinger and Francesco Zanetti)

Nonlinear Inflation Dynamics in the Canonical Calvo Pricing Model (with Kao Nomura


The Macroeconomic Effects of Cash Transfers: Evidence from Brazil (by Arthur Mendes, Wataru Miyamoto, Thuy Lan Nguyen, Steven Pennings, and Leo Feler), Financial and Economic Developments: New Challenges and Policy Solutions (Oxford-CEPR-BoJ-Waseda) at the Waseda University, 2024 [slides]

Evergreening (by Miguel Faria-e-Castro, Pascal Paul, and Juan M. Sánchez), Workshop on Financial Frictions, Zombie Firms and the Macroeconomy at the University of Oxford, 2023 [slides]

Understanding Trend Inflation Through the Lens of the Goods and Services Sectors (by Yunjong Eo, Luis Uzeda, and Benjamin Wong), Japan-Korea Economic Society Academic Exchange Workshop, 2022 [slides]