Working Papers

Revise and resubmit, American Economic Review
January 2018

Abstract: Drawing on a new, confidential Census Bureau dataset of financial statements of a representative sample of 80000 manufacturing firms from 1977 and 2014, we provide new evidence on the link between size, cyclicality, and financial frictions. First, we only find evidence of lower cyclicality among the very largest firms (the top 1% by size). Second, due to high and rising concentration of sales and investment, the lower sensitivity of the top 1% firms dominates the behavior of aggregate fluctuations. Third, we show that this differential sensitivity does not appear to be driven by financial frictions. The higher sensitivity of the bottom 99% does not disappear after controlling for measures of financial strength, is not statistically significant after identified monetary policy shocks, and does not appear in debt financing flows. Evidence from 3-digit industries suggests a non-financial explanation: the largest 1% of firms are less sensitive due to a more diversified customer base.

May 2017
Abstract: Conditions of secular stagnation - low growth and low real interest rates - have counteracting effects on the cost of servicing the public debt. With sufficiently low interest rates relative to growth, governments can raise revenues by increasing the debt to GDP ratio. I analyze empirically and theoretically the tradeoffs involved with increased public debt. Using data from 1870 for advanced economies, interest rates on government debt are frequently less than GDP growth. However, despite current conditions of r < g, I find a moderate probability of reversion to conditions with r > g over a 5 or 10 year horizon and substantial variability in r - g. Using a 56 period quantitative lifecycle model calibrated to the US, I show that slower population growth worsens the cost of servicing the debt, while slower productivity growth improves this cost. Despite r < g, the level of public debt that minimizes the cost of servicing the debt is lower than current levels.

Related (prepared for the Peterson Institute of International Economics):
Abstract: Advanced economies have emerged from the Great Recession with high levels of public debt and weak productivity growth, raising concerns over debt sustainability. However, interest rates have remained historically low, keeping debt servicing costs manageable. Using data for 17 advanced economies, interest rates on government debt are often less than GDP growth as in the current period, but r − g exhibits substantial variability with moderate probabilities of reversion to conditions of r > g over a 5 to 10 year horizon. Additionally, interest rates across countries are driven by a common component suggesting that, for faster-growing small open economies, slow global growth may be beneficial for debt sustainability by depressing global rates. Real interest rate projections for the G7 suggest that debt servicing costs will remain low for non-Eurozone economies, though uncertainty bands are large. 

Revise and resubmit, Journal of Monetary Economics
September 2017
Abstract: In this paper, we argue that aggregate job flows and job flows across firm age and size can be used to measure the employment effects of disruptions to firm credit. Using a heterogenous firm dynamics model, we establish that a tightening of credit to firms reduces employment primarily by reducing gross job creation, exhibiting stronger effects at new/young firms (0-5 years) and middle-sized firm (20-99 employees). We estimate that 18% of the decline in US employment during the Great Recession is due to the firm credit channel. Using MSA-level job flows data, we show that the behavior of job flows in response to identified credit shocks is consistent with our model's predictions.

Sectoral Shocks, The Beveridge Curve and Monetary Policy (with Dmitriy Sergeyev)
December 2013
Abstract: The slow recovery of the US labor market and the observed shift in the Beveridge curve has prompted speculation that sector-specific shocks may be responsible for the current recession. We document a significant correlation between shifts in the US Beveridge curve in postwar data and periods of elevated sectoral shocks, relying on a factor analysis of sectoral employment to derive our sectoral shock index. We provide conditions under which sector-specific shocks in a multisector model augmented with labor market search generate outward shifts in the Beveridge curve and raise the natural rate of unemployment. Consistent with empirical evidence, our model also generates cyclical movements in aggregate matching function efficiency and mismatch across sectors. We calibrate a two-sector version of our model and demonstrate that a negative shock to construction employment calibrated to match employment shares can fully account for the outward shift in the Beveridge curve. We augment our standard multisector model with financial frictions to demonstrate that financial shocks or a binding zero lower bound can act like sectoral productivity shocks, generating a shift in the Beveridge curve that may be counteracted by expansionary monetary policy.


Press Coverage:
Providence Journal (April 21, 2015)
Brown Daily Herald (April 9, 2015)
Providence Business News (March 23, 2015)