Abstract: We study how regional housing market disruptions spill over across US local markets through intrafirm spatial networks created by multimarket firms. We identify spillovers by linking granular data on product-county-level prices and quantities with producer-level information and exploiting variation in firms’ exposure to differential declines in local house prices. A firm’s local sales decrease following a local housing price decrease but do so more strongly to indirect exposure to the housing price decrease originating in its other markets. Our barcode-level data and multiregion model with endogenous product quality adjustment reveal a novel uniform product replacement mechanism behind the spillover: Firms replace higher-value products with lower-value products in response to the housing market disruptions, and such product replacements are synchronized across markets within each firm, including the markets with stable housing prices.

Abstract: This paper explores how different margins of market share are related to markups. Using merged microdata on producers and consumers, we document that a firm’s market share is mainly related to its number of customers, while its price-cost markup is associated only with its average sales per customer. We develop a new model that reflects this empirical evidence and the endogenous nature of customer acquisition. When calibrated, this model predicts a higher degree of markup dispersion, which suggests greater efficiency losses due to customer misallocation. An analysis of the efficient allocation in this model reveals that compared with the equilibrium, aggregate TFP and output are 10.8% and 14% higher, respectively.

Abstract: What are the welfare implications of trade shocks? We provide a sufficient statistic that measures changes in welfare, to a first-order approximation, taking into account adjustment in labor supply, in frictional unemployment, and in the sectors to which workers apply while allowing for arbitrary heterogeneity in worker productivity and nonpecuniary returns across sectors. We apply these insights to measure changes in welfare across commuting zones (CZs) in the U.S. between 2000-2007. We find that granting China permanent normal trade relations lowers the welfare of a CZ at the 90th percentile of exposure by 3.1 percentage points relative to a CZ at the 10th percentile; of this, approximately 65 percent is due to changes in unemployment and much of this is driven by the non-pecuniary costs of unemployment.

Abstract: I study how a credit crunch affects output price dynamics. I build a unique micro-level dataset that combines scanner-level prices and quantities with producer information, including the producer’s banking relationships, inventory, and cash holdings. I exploit the Lehman Brothers’ failure as a quasi-experiment and find that the firms that face a negative credit supply shock decrease their output prices approximately 15% more than their unaffected counterparts. I hypothesize that such firms reduce prices to liquidate inventory and to generate additional cash flow from the product market. I find strong empirical support for this hypothesis: (i) the firms that face a negative bank shock temporarily decrease their prices and inventory and increase their market share and cash holdings relative to their counterparts, and (ii) this effect is stronger for the firms and sectors with a high initial inventory or small initial cash holdings.

Abstract: We develop a framework to analyze the impact of trade shocks on a range of labor market adjustment margins in economies with a large number of sectors and labor groups. We provide analytic results characterizing equilibria. We show that labor groups earning a greater share of wage income in sectors with relative price declines experience a relative increase in unemployment and non-participation and decrease in wages and welfare. Our framework provides a guide for quantitative and empirical investigations into the labor-market impacts of trade shocks.

Abstract: We study business cycles with cyclical returns to scale. Contrary to tightly parameterized production functions (e.g., Cobb-Douglas and constant elasticity of substitution), we empirically identify strong input complementarity that leads to procyclical returns to scale. We, therefore, propose a flexible translog production function that allows complementarity-induced procyclical returns to scale. We integrate this function into a standard medium-scale dynamic stochastic general equilibrium (DSGE) model. Our estimated model with input complementarity (i) features procyclical returns to scale and acyclical price markups, (ii) better matches the cyclicality of factor shares, and (iii) significantly decreases the contribution of markup shocks to output fluctuations relative to those of the standard model.