Research
Job Market Paper
(2024) Monetary Policy Transmission in Economies with Informal Labor Markets
Abstract: This paper examines how labor informality affects the transmission of monetary policy, using data from Peru’s National Household Survey (2012–2022). The findings reveal that informal workers have a higher marginal propensity to consume and are more sensitive to economic changes. A Two-Agent New Keynesian model is developed, showing that informal labor markets amplify monetary policy’s effects on output and inflation.
Link to my JMP
Work-in-Progress
(2024) Exports and Exchange Regimes
With Raimundo Soto
Abstract: This paper explores the impact of exchange rate regimes in fragile-developing countries. Using a general equilibrium model designed specifically for fragile-developing economies, we examine how exchange rate misalignments affect exports, capital accumulation, and economic stability. Fixed exchange rate regimes often hinder export competitiveness and exacerbate fragility, while floating regimes offer greater flexibility to manage external shocks and promote growth. The analysis highlights the role of public investment and learning-by-exporting in fostering economic resilience. The findings provide policy recommendations for managing exchange rate regimes to enhance both economic growth and political stability in fragile states.
(2023) Banking Dynamics under Unconventional Monetary Policy: Exploring the Effects of Negative Interest Rates on Banking Concentration
With Roberto Maura-Rivero
Abstract: This paper investigates the impact of accommodative monetary policies, particularly negative interest rates, on the structure and concentration of the banking industry. Building on the existing literature, we develop a theoretical model involving heterogeneous banks to examine their potential consequences. Our model demonstrates that negative interest rates may reduce bank profits, disproportionately affecting smaller banks with lower net worth. Consequently, small banks become more vulnerable to being acquired by larger banks, resulting in increased banking concentration. Our findings contribute to the ongoing debate on the effects of unconventional monetary policy and banking concentration.
(2023) Complementarity and Substitution of Formal and Informal Employment during Business Cycles
Abstract: Is informal employment acyclical, procyclical, or countercyclical? To address this question, this paper analyzes data from Peru's Permanent Employment Survey (EPE) spanning 2002 to 2019. The EPE provides monthly data on employment and income for both formal and informal workers. Our findings reveal that informal wages exhibit greater volatility than formal wages, and informal employment increases during economic downturns, confirming a countercyclical pattern. To further explore these dynamics, we develop a model with heterogeneous agents that incorporates labor search frictions. Using Peruvian data, we calibrate the model to replicate the cyclicality of informal employment during business cycles. The model is then used to evaluate the impact of various policy measures, such as minimum wage regulations and taxation. Thus, the model serves as a tool for understanding how informal employment responds to economic conditions and policy interventions.
(2022) Unexpected Inflation, Credit Supply, and Financial Frictions
Abstract: While the literature extensively covers inflation's impact on borrowers, it often overlooks the consequences for lenders. This study addresses this gap by examining how unexpected inflation diminishes bank equity and constrains loan supply, particularly in the presence of financial frictions and imperfect banking competition. To explore this, the paper constructs a general equilibrium model with financial intermediaries and heterogeneous firms. The model demonstrates that banks, as net nominal creditors, suffer a reduction in the real value of their assets, limiting their capacity to lend. The resulting credit rationing disproportionately affects new firms seeking loans, while existing borrowers benefit from reduced real debt burdens, potentially leading to resource misallocation and the proliferation of 'zombie firms.'
Book Chapters
(2021) I. Elbadawi, R. Soto, and I.Z. Martinez (2021): "Exports, Exchange Regimes, and Fragility", in R. Chami, R. Espinoza, and P.J. Montiel (editors): Macroeconomic Policy in Fragile States. Oxford University Press, 2021.
Link
Working Papers & Publications (Spanish)
(2017) Cyclical Complementarity and Substitution in Informal Employment within Small Open Economies
Abstract: This paper aims to identify the extent to which aggregate productivity shocks and sectoral productivity shocks explain the cyclicality of formal and informal employment during business cycles in a small open economy with unemployment. Using a DSGE model with two sectors and search frictions, the study explains the dynamics of formal and informal job movements. Specifically, when an aggregate productivity shock occurs, informal employment is pro-cyclical (complementarity), whereas, in the case of a sectoral productivity shock, informal employment is counter-cyclical (substitution).
Short version: Revista Economía y Sociedad No 86, page 34-40, Lima, Peru.
Abstract: This paper presents an econometric assessment of the causal relationship between exports and employment, using the methodology of Dynamic Panel Data with GMM estimators. The results were analyzed at the regional level to determine the degree of sensitivity of employment to changes in exports. The study also seeks to analyze and identify the major external shocks to the Peruvian labor market, recognizing the potential heterogeneous effects of these shocks on employment dynamics in both the tradable and non-tradable sectors. Therefore, the study employed the Factor Augmented VAR (FAVAR) methodology. Finally, the paper concludes with policy recommendations aimed at improving the capacity of the non-tradable sector to "buffer" external shocks, along with an analysis of key international experiences (benchmarking).
(2012) The Role of Unemployment in Salary Determination: Empirical Evidence for Lima Metropolitan
Abstract: This paper presents an econometric assessment of the role of unemployment in wage determination, considering the employment source (formal or informal). Using data from the National Household Survey (ENAHO) and the Dynamic Panel Data (GMM) methodology, the results show that Lima Metropolitan exhibits a 'wage curve.' Moreover, this curve is more inelastic for formal jobs compared to informal jobs, suggesting stronger wage rigidities in the formal sector.