Working papers

Cost-Price Relationships in a Concentrated Economy, with Falk Bräuning and Gustavo Joaquim (June 2022).

We use local projection with granular instrumental variables to estimate the pass through of costs into prices and how it is affected by industry concentration. On average, we find that prices increase above trend growth for three quarters after an exogenous cost shock, accompanied by a decline in output, with an estimated pass-through of 0.7. The price response to shocks becomes about 60 percent greater when there is an increase in concentration similar to the one observed since the beginning of this century. However, this differential effect depending on concentration is entirely driven by a higher pass-through of positive cost shocks. Consistent with market power, margins decrease less in more concentrated industries after cost increases. Within industry, margins of industry leaders are not squeezed in response to positive cost shocks, unlike those of followers, while negative shocks increase margins for all firms. Our findings shed light on the post-COVID inflationary pressures and the linkages between inflation dynamics and rising market concentration.

Corporate Finance and the Transmission of Shocks to the Real Economy, with Falk Bräuning and Gustavo Joaquim (June 2022).

Credit availability from different sources varies greatly across firms and has firm-level effects on investment decisions and aggregate effects on output. We develop a theoretical framework in which firms decide endogenously at the extensive and intensive margins of different funding sources to study the role of firm choices on the transmission of credit supply shocks to the real economy. As in the data, firms can borrow from different banks, issue bonds, or raise equity through retained earnings to fund productive investment. Our model is calibrated to detailed firm- and loan-level data and reproduces stylized empirical facts: Larger, more productive firms rely on more banks and more sources of funding. Smaller firms mostly rely on a small number of banks and internal funding. Our quantitative analysis shows that bank credit supply shocks lead to a sizable reduction in aggregate output, with substantial heterogeneity across firms, due to the lack of substitutability among alternative credit sources. Finally, we show that our insights have important implications for the interpretation of standard empirical methods used to identify credit supply effects (Khwaja and Mian, 2008). 

On the Origins of the Multinational Premium, with Stefania Garetto (April 2022).

This paper studies the relationship between management, firm expansion, and firm risk exposure. We document three empirical regularities. First, multinational enterprises (MNEs) are more likely to be run by managers with previous experience in multinational expansion. Second, current and future MNEs are riskier than firms that never enter foreign markets. Third, managers’ characteristics contribute to explain MNEs’ risk premia and risk exposure. To rationalize these facts, we develop a dynamic model in which managerial experience shapes the relationship between firm characteristics, selection into FDI, and risk premia. The model lends itself to a quantitative analysis that exploits its mechanisms to suggest that distortions to the market for managerial talent may have unwanted effects on multinational activity and financial market outcomes.

Portfolio Choice with House Value Misperception, with Stefano Corradin and Carles Vergara-Alert.

We use data on self-reported and market house values to present empirical evidence of house value misperception at the household level. We build an optimal portfolio choice model that features misperception, as observed in the data. Households make consumption and portfolio decisions on housing and non-housing assets with transaction costs in the housing adjustments. The household uses subjective housing valuations, which may differ from the market value. It is costly to observe the actual market value, therefore the household has to decide each period whether to pay for observing the market value or not, and then whether to move to a different house or not. Our model delivers several empirical implications that we test with the PSID restricted sample with information at the zipcode level.

Housing as a Measure for the Long-Run Risk in Asset Pricing, University of Chicago, 2007.

Cyclical Properties of Operational Risk, Federal Reserve Bank of Boston, 2011.

Addressing the Pro-cyclicality of Capital Requirements with a Dynamic Loan Loss Provision System, with Judit Montoriol-Garriga, QAU Working Paper 10-4, 2008.

Housing as a Measure for the Long-Run Risk in Asset Pricing, University of Chicago, 2008.

Looking Behind the Aggregates: A Reply to “Facts and Myths about the Financial Crisis of 2008”, with Ethan Cohen-Cole, Burcu Duygan-Bump, and Judit Montoriol-Garriga, QAU Working Paper 08-5, 2008.

GMM Estimation of an Asset Pricing Model with Habit Persistence, with Hugo Garduño, University of Chicago, 2005.