Research and Policy Work

Published and Accepted Papers:

Heterogeneous Spillovers of Housing Credit Policy (Forthcoming at Review of Economic Dynamics)


We study the spillovers from government intervention in the mortgage market on households' consumption. Expansionary credit policy increases the consumption of homeowners with mortgage debt significantly, while the consumption response of homeowners without mortgage debt is small and insignificant. Non-homeowners also increase their consumption but less than mortgagors. We also find heterogeneous responses of households of different ages. We explain these facts through a life-cycle model with incomplete markets and endogenous housing choice. Downward pressure on the credit and interest rates creates extra wealth for the mortgagors via the refinancing channel.

[pdf | online appendix | Banco de España working paper]

How Inflation Varies Across Spanish Households (ICE, Revista De Economía)

- with Henrique S. Basso and Ourania Dimakou


Inflation has distributional effects. Leveraging data on consumption expenditure of goods across households provided in the Spanish Household Budget Survey we estimate household-specific inflation from 2006 to 2021 in Spain and analyse how it varies according to households' known characteristics. We show that households with lower income, more members and whose head is less educated, older, and male experience higher inflation. Finally, we also depict the effects of the most recent price increases across households.

Policy Work:

Analysis of Labor Flows and Consumption in Spain During COVID-19 - Occasional Paper No 2202, Banco de España

- with Piluca Alvargonzález, Marina Gómez, Carmen Martínez-Carrascal, and Ernesto Villanueva

[ pdf ]

Employment and the conduct of monetary policy in the euro area - Occasional Paper No 275, European Central Bank

[ pdf ]

The housing market in Spain: 2014 - 2019 - Occasional Paper No 2013, Banco de España

[ pdf | version in Spanish ]

The financial position of the workers most affected by the pandemic: an analysis drawing on the Spanish Survey of Household Finances - Analytical Articles, Economic Bulletin, 2/2020, Banco de España

- with Piluca Alvargonzález and Ernesto Villanueva

[pdf | version in Spanish ]

Working Papers:

Marginal Tax Rates and Income in the Long Run: Evidence from a Structural Estimation (Revise and Resubmit at Journal of Monetary Economics)

- with Patrick Macnamara and Raffaele Rossi


Using an estimated life-cycle model, we quantify the role of heterogeneity in wealth returns for the response of income to marginal tax changes. In our economy, agents who are sufficiently productive can obtain higher returns by choosing to be entrepreneurs. Return heterogeneity amplifies the responsiveness of income to marginal tax changes along the entire income distribution with the top 1 percent displaying the highest elasticities. Return heterogeneity increases the incentives to invest for the richest, high-return entrepreneurs, thus amplifying their income responses to marginal tax changes. This reallocation of capital increases aggregate productivity, generating a larger boost in equilibrium wages. This in turn strengthens the income response of the bottom 90 percent, but nevertheless, their response is smaller than at the top.

[pdf | Banco de España working paper]

The Resolution of Long-Run Risk (Revise and Resubmit at International Economic Review)

- with Raffaele Rossi and Klaus Reiner Schenk-Hoppé


Long-run risk models, a cornerstone in the macro-finance literature for their ability to capture key asset price phenomena, are known to entail implausibly high levels of timing and risk premia. Our paper addresses this puzzle by considering consumption of durable goods in addition to that of non-durable goods. In our estimated model, timing and risk premia are 11 and 16 percent of lifetime consumption, respectively. These values are about a third of the previously implied premia and are more consistent with the empirical and the experimental evidence.

Taxing Consumption in Unequal Economies (NEW PAPER)

- with Patrick Macnamara and Raffaele Rossi

This paper shows that linear consumption taxes are a powerful tool to implement efficient redistribution. We derive this result in an estimated life-cycle economy with labor and capital income risk that reproduces the distribution of income and wealth in the United States. Optimal policy calls for raising all scal revenues from consumption, and providing social insurance via a highly progressive wage tax schedule. Capital income and wealth should not be taxed. This policy reduces inequality and increases productivity, and brings large welfare gains both relative to the status-quo and to the case where consumption is not taxed. More than two-thirds of these gains are due to redistribution. Considering transitional dynamics, we show that our reform also generates large welfare gains in the short run.

Child Endowment and Human Capital Investment: Evidence from Ethiopia

- with Liyousew G. Borga


Using a unique longitudinal survey from Ethiopia, this paper investigates whether resource constrained parents reinforce or attenuate differences in early abilities between their children. To overcome the potential endogeneity associated with measures of endowment, we construct a measure of human capital at birth that is plausibly net of prenatal investments. Furthermore, we estimate a sibling fixed-effects model to reduce the bias due to unobserved family-specific heterogeneity. We find that parents reinforce educational inequality, as inherently healthy children are more likely to attend preschool, be enrolled in elementary school, and have more expenses incurred towards their education. Health inputs, on the other hand, are allocated in a compensatory manner.

How Consumption Carbon Emission Intensity Varies Across Spanish Households (Draft Coming Soon)

- with Henrique S. Basso and Ourania Dimakou


The upscale and eminence of carbon tax policies call for an understanding of their distributional impact on households. To assess this distributional heterogeneity, we quantify and analyse the consumption emission intensity, defined as carbon emissions per unit of consumption, across households in Spain. With the exception of the poorest households, emission intensity decreases with income and peaks for households whose head is middle-aged (40 years old). Moreover, households whose main earner is less educated and male emit more per unit of expenditure. Thus, carbon taxes may disproportionably impact middle-aged households whose income is around 1000 euros, and whose head is male and less educated.

Work in Progress:

Housing Tenure and Household Debt: Life-Cycle Dynamics During a Boom and Bust (Draft Coming Soon)

- with Julio Gálvez and Clodomiro Ferreira

Using household level data on assets, liabilities, income and consumption covering the last housing boom-bust cycle in Spain 2002-2017, we non-parametrically document three cohort and life-cycle dynamics: (i) a significant and fast drop in home-ownership for young cohorts during the bust, combined with a mild and gradual decrease in overall home-ownership rate as well as significant movements in rent-price ratios; (ii) a change in income dynamics between expansion and recession, characterized by a drop in income levels as well as asymmetric shifts in conditional persistence and skewness of income shocks; and (iii) a significant consumption drop, which was relatively homogeneous across ages. We then use the same data to estimate an equilibrium life-cycle model with non-linear income dynamics, mortgages, housing and rental markets. The estimated model matches several household distributional moments. We carry out counterfactual experiments and show that the lions-share observed drop in home-ownership and consumption, as well as the housing market dynamics, can be explained by the tightening in credit conditions and the estimated shift in income dynamics observed in Spain between the boom and bust phases.

The Role of Parental Investment for Human Capital Formation, Happiness and Adverse Behavior (Draft Coming Soon)

- with Liyousew G. Borga

We formulate and structurally estimate multistage production functions for children's cognitive, noncognitive and health endowments from birth until age 14, using Millennium Cohort Study from the UK. The inputs into the production functions include parental background, prior child endowments, and parental investments. Our estimation is based on a nonlinear factor model, using multiple measurements for inputs and child endowments. We consider the role of two different parental investment behaviors: parenting style and material investment. Our results show that positive parenting is associated with better human capital outcomes at younger ages while material investment is more productive at later ages. We also characterize the nature of persistence (self- and cross-productivities) and dynamic complementarities between the three components of human capital. We also estimate the role of child endowments on teenage behaviour. Adverse behavior (smoking, drinking, drug use) are associated with lower cognitive and noncognitive skills at younger ages, as well as lower parental investment; we find the opposite results for teenage subjective wellbeing.

The Human Capital Cost of School Closures During the Pandemic in the UK

- with Liyousew G. Borga and Raffaele Rossi

Climate Change and Inequality: The Welfare Effects of Carbon Tax

- with Henrique S. Basso and Omar Rachedi

Uncertainty and Inequality

- with Patrick Macnamara, Anh D. M. Nguyen and Raffaele Rossi

Old Stuff:

Consumer Sentiment, Durable Consumption, and Stock Returns


Using the Michigan Survey of Consumers, we provide evidence that consumers' beliefs about current and future aggregate durable expenditure predicts expected returns. We rationalize this finding through an asset pricing model with recursive preferences over non-durable and durable goods and belief formation through Bayesian learning. We estimate the model to match standard macroeconomic and financial moments. Expectations about future consumption growth enter the stochastic discount factor of the economy through consumers' intertemporal marginal rate of substitution. This generates the predictability of beliefs for all future asset returns.

[ pdf ]