Research

Working Papers

•  On the Role of Product Quality in Product Reallocation and Macroeconomic Dynamics, GREDI Working Paper 22-01 

Recent empirical investigations by Argente et al. (2018) reveal that product reallocation, i.e. creation and destruction of products, happens through two leading margins: entry and exit of production modules within firms, the so-called “extensions”, and changes in the characteristics of products within incumbent production modules, the so-called “improvements”. This paper develops a DSGE model in which product reallocation involves these two margins and examines the impact on macroeconomic dynamics. I show that relative to the standard model that only accounts for extensions, the model augmented with improvements does a better job at explaining the dynamics of products and the firm-level TFP. A recession facilitates the production of low-quality/low-cost products, which allows the survival of low-productivity modules that would not survive in a fixed-quality environment.  Thus, the firm-level TFP decreases. As the recessionary shock dissipates, the share of production modules that use costly technology and manufacture high-quality goods increases, thereby also increasing the firm-level TFP. My results illustrate the importance of recognizing the dynamics of product characteristics within firms' production lines in addition to the dynamics of production lines per se to understand business cycles.

• Macroeconomic Volatility, Informal Economy and  Firm Dynamics, joint with Jonathan Goyette (Université de Sherbrooke) and Masashige Hamano (Waseda University)

Considering the number of firms in the formal and informal sectors as fixed over time, a growing body of literature argues that a poor measurement of the informal economy in the national accounts results in high consumption volatility. In this paper, we relax the “fixed extensive margin” assumption and examine its implication on the measured macroeconomic volatility. To do so, we build a two-sector DSGE model in which heterogeneous firms have the choice of locating in the formal or informal sector over the business cycle, leading to an endogenous determination of the periodic extensive margin of each sector. The results show that in the presence of flexible extensive margins, a mismeasurement of the informal economy in the national accounts does not systematically lead to high consumption volatility. When firm entry and the informal sector productivity cutoff can fluctuate over time, consumption volatility that abstracts from the informal sector can be lower than true consumption volatility that includes formal and informal goods.

• Aggregate Price Dynamics and the Informal Sector 

I consider an economy where one sector is formal, the other is informal, and aggregate prices are measured on a welfare basis, i.e. including changes in product variety and quality over time. The model is calibrated on the US economy relative to Brazil. To the question of whether accounting for product quality and variety in aggregate prices leads to a higher measure of consumption volatility, I show that the answer depends on the extent to which the informal sector is measured. If price dynamics in the informal sector are not measured at all, the answer is yes, as shown in the literature so far. However, if the informal sector is fully measured, the answer is no, as demonstrated in the present paper. 

Work in Progress

• Firm Vintage and Trade Dynamics

Professional Reports

• Portraits of debt in Quebec (joint with Jonathan Goyette and Rébecca Bleau). Available upon request.