Research

Publications

Journal of the Association of Environmental and Resource Economists, 2024

Reduced carbon emissions can improve the climate, raising young people’s future income and altering old people’s wealth via changes in asset prices. We show that a small level of abatement changes the old and young generations’ welfare in the same direction if and only if their elasticities of intertemporal substitution exceed one. Endogenous asset prices can change the sign and magnitude of the generations’ selfish incentives to undertake climate policy. Our quantitative model shows that the young generation’s concern for future consumption significantly reduces the equilibrium carbon trajectory, but the endogeneity of asset prices has a small effect.


Journal of Law and Economics, 2024

Focusing on Chapter 11 bankruptcy reorganizations of publicly listed firms during the court competition era (1991–96), we document local legal employment effects of forum shopping, a stipulation of the law that allows firms to file for bankruptcy far from their headquarters. Bankruptcy shocks increase legal-sector employment in the bankrupt firm’s locale, but forum shopping nullifies this effect. Employment gains of received forum-shopped cases are concentrated in Delaware, with no effect in other receiving forums. Quantification shows that Delaware handled these forum-shopped bankruptcies with just one-fifth of the additional legal workforce that would have been needed if the cases were handled in the firms’ locales. This increase in productivity also coincides with substantial missed potential employment gains in communities where bankruptcies were diverted through forum shopping. The analysis uncovers meaningful effects of forum shopping on local legal labor markets, so far overlooked in the policy debate.

Previously circulated as: "Bankruptcy Shocks and Legal Labor Markets: Evidence from the Court Competition Era".


The Review of Economics and Statistics, 2023

Aggregate and sectoral effects of public investment crucially depend on the interaction between the output elasticity to public capital and intermediate inputs. We uncover this fact through the lens of a New Keynesian production network. This setting doubles the socially optimal amount of public capital relative to the one-sector model without intermediate inputs, leading to a substantial amplification of the public-investment multiplier. We also document novel sectoral implications of public investment. Although public investment is concentrated in far fewer sectors than public consumption, its effects are relatively more evenly distributed across industries. We validate this model implication in the data.


Journal of Public Economic Theory, 2022

Beliefs about the arrival time of a vaccine have a large effect on optimal social distancing in an SIR model, though the relationship is complex. A higher mean vaccine arrival time can increase or decrease optimal distancing depending on assumptions. We analytically demonstrate two channels that explain the ambiguity. We use a quantitative model that allows for targeted policy across risk groups to evaluate recent proposals for COVID-19 to let the young go and protect the old. If mean vaccine arrival time is two years, the proposal might be loosely justified, but it is catastrophic if mean arrival is six months—520, 000 more old die, 380, 000 more young die, and regret exceeds US$3 trillion. The welfare gains from targeted policy are also highly sensitive to vaccine arrival beliefs.

Press: [The Daily Californian],  [ARE Update], [CSSL Blog]


Nature Human Behaviour, 2021

Economic growth in the 19th and 20th centuries, following the Industrial Revolutions, was much faster than in preceding centuries. This unprecedented global growth coincided with the global proliferation of democracy, with some evidence for bidirectional causation. Macroeconomic forecasts have predicted slower economic growth in the 21st century– perhaps substantially slower–for structural reasons such as aging populations, slowdowns in innovation, and debt. Long-run effects of COVID-19 and climate change could further slow growth. Moreover, some sustainability scientists assert that slower growth, stagnation, or even de-growth is an environmental imperative. Whether slow growth is inevitable or planned, we argue that democracies should prepare for additional fiscal and social stress–some of which is already apparent. Focusing on developed democracies, we propose that preparations should include efforts to: (i) reduce inequality; (ii) socially integrate diverse populations and build shared identities; (iii) increase economic opportunity for youth; (iv) improve return on investment in taxation and public spending; (v) strengthen formal democratic institutions; and (vi) invest in improving non-economic drivers of subjective well-being. Many aspects of our analysis likely also apply to other types of societies besides developed democracies.

Press: [CU], [UCSB]

Economic Journal, 2020

We study the series of US annual corporate default rates from 1950 until 2012 and document the presence of one structural break in the unconditional mean, which is dated in 1986. Meanwhile credit spreads hardly moved. We present a dynamic equilibrium model where the development of credit markets accounts for this empirical evidence. Financial development increases both the default rate and firms’ expected recovery rates. These two effects offset each other and translate into constant credit spreads. In the model financial development explains 64% of the rise in default rates and predicts just a 2 basis point increase in the credit spreads. Furthermore, the model accounts for a number of trends that characterized public firms over the last decades: the fall in the number of firms distributing dividends, the rise in the degree of dividend smoothing, and the increase in the volatility of public firms. 

Awards: AEFIN Award to the Best Paper of the XXI Finance Forum 


 Journal of Economic Dynamics and Control, 2020

We propose a novel approach for the computation of dynamic stochastic equilibrium models. We design an FPGA specialized in the computation of a Bellman equation via value function iteration (VFI). Our hardware approach documents significant speed gains vis-à-vis GPU-based data-parallelization techniques. The speed gains arise from two layers of parallelism, accessible to hardware developers: instruction-level and pipeline parallelism at the logical resources level. By and large, the paper highlights significant computational speed gains from hardware specialization, so far unexplored by the macroeconomic literature. 

AMAZON AWS AMI

On the 26th of September 2018 we launched in Amazon AWS the FPGA - Value Function Iteration Accelerator to illustrate the FPGA solution presented in the paper “A Hardware Approach to Value Function Iteration”. You can access our AMI at the following Link. To use the AMI, you need an Amazon AWS account (instructions here). Once you have created your account you can launch it. See the instruction below for further information on how to use the AMI.

Amazon Machine Image (AMI): Link

Instructions / Practical Guide: Here

Pricing: The AMI we offer is free! Yet, you will be charged by Amazon AWS for the use of one of their machines connected to an FPGA (f1.2x.large).

Working Papers

Quantitative Economics (Conditionally Accepted)

We show how to use field-programmable gate arrays (FPGAs) and their associated high- level synthesis (HLS) compilers to solve heterogeneous agent models with incomplete mar- kets and aggregate uncertainty (Krusell and Smith, 1998). We document that the accel- eration delivered by one single FPGA is comparable to that provided by using 69 CPU cores in a conventional cluster. The time to solve 1,200 versions of the model drops from 8 hours to 7 minutes, illustrating a great potential for structural estimation. We de- scribe how to achieve multiple acceleration opportunities -pipeline, data-level parallelism, and data precision- with minimal modification of the C/C++ code written for a traditional sequential processor, which we then deploy on FPGAs easily available at Amazon Web Ser- vices. We quantify the speedup and cost of these accelerations. Our paper is the first step toward a new field, electrical engineering economics, focused on designing computational accelerators for economics to tackle challenging quantitative models.


R&R, Economic Journal (2nd Round),    RFBerlin – CReAM Discussion Paper No. 03/24.

Tighter money-laundering regulations in offshore financial havens may inadvertently spur incentives to launder money domestically. Our study exploits regulations targeting financially based money laundering in Caribbean jurisdictions to uncover the creation of front companies in the United States. We find that counties exposed via offshore financial links to these jurisdictions experienced an increase in business activities after the tightening of anti-money-laundering regulations. The effect is more pronounced among small firms, in sectors at high risk of money laundering, and in regions with high intensities of drug trafficking. Our work provides the first empirical evidence of the real effects of policy-induced money-laundering leakage.

Previously circulated as "Hiding Filthy Lucre in Plain Sight: Theory and Identification of Business-Based Money Laundering", SSRN, Cesifo WP no. 9019.


Reject and Resubmit, IER   

Firms file for reorganization bankruptcy (Chapter 11) to restructure, not only debt, but also, labor contracts. In this environment, pro-creditor bankruptcy reforms face a trade-off: they increase recovery values of successful reorganizations but suffocate managers’ incentives to restructure labor contracts. Accordingly, reorganizations are more likely to fail, causing the inefficient liquidation of firms. I test the theory in the U.S. data by exploiting a creditor- friendly reform in 2001 and heterogeneity in right-to-work labor laws. I then estimate a dynamic model to assess the firms’ financing and wage implications of the 2001-reform.



Work in Progress

Is the corporate bankruptcy law design important for the firm dynamics? I build a general equilibrium firm dynamics model in which the default option replicates salient features of the U.S. Bankruptcy Code: distressed firms can voluntarily file either for liquidation (Chapter 7) or reorganization (Chapter 11). The model is consistent with several regularities on corporate bankruptcy and firm dynamics. I find that changes in the bankruptcy law design have strong implications on the selection of the firms through the effect they exert on the entry decision. I use the framework to assess the general equilibrium implications of bankruptcy reforms. 

I study an economy where banks need funds to finance projects, but because of private information have incentives to take too much risk. Boot et al. (2006) show that a social planner can temper the risk taking behaviour by constraining a fraction of the investors to invest in safe-assets, using the credit rating agency as a coordination mechanism. This paper shows that if banks have access to a securitisation technology the result might be reversed. When there is a strong demand for safe assets, banks might find optimal to finance risky projects by tranching them and selling the safe tranche expansively in the market for safe assets (ABS), while maintaining in their balance-sheet the risky part. As a result, the regulation might fuel the risk taking behaviour.