Publications

We augment Henderson et al. (2012)’s two-signal model of true GDP growth with a third signal to overcome its underidentification problem. The additional moment conditions from the third signal help fully identify all model parameters without ad-hoc calibrations of the GDP’s signal-to-noise ratio. We characterize the necessary properties of the third signal. Using the model, we recover the optimal weight of official GDP in the composite true GDP growth estimates, which varies with the quality of the national statistics. The model improves on existing methodologies that use signals to measure true income.

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Abstract: We use detailed data from Indonesian cities to study how variation in density within urban areas affects social capital. For identification, we instrument density with soil characteristics, and control for community averages of observed characteristics. Under plausible assumptions, these controls address sorting on observables and unobservables. We find that lower density increases trust in neighbours and community participation. We also find that lower density is associated with reduced interethnic tolerance, but this relationship is explained by sorting. Heterogeneity analysis suggests that crime in dense areas undermines community trust and participation, intensifying the negative impact of density. 

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Abstract: We study how a rationally inattentive decision maker chooses state-contingent actions under uncertainty in complex environments. We explore a series of decision problems by varying the number of states as well as incentive structures. We fully characterize the theoretical solutions and compare them to choices made by subjects facing those problems in a controlled laboratory experiment. Observed behavior is broadly consistent with the theoretical model, with subjects responding to changes in complexity and incentives by varying their level of attention. Nevertheless, some interesting differences emerge from the experimental data. In particular, we find only mixed support for the invariance under compression property, that perceptual factors may be required to explain some aspects of subject behavior, and that complexity can affect the ratio of expected utility to information gains. 

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Abstract: Using a Vector Autoregressive framework of analysis, we show that banks contract their supply of business credit in response to an exogenous increase in economic policy uncertainty. This contraction takes two main, distinct forms. On the one hand, banks restrict their supply of spot funds, which we document using flows of loans and term loan originations. On the other hand, banks also curtail their provision of liquidity insurance, reducing the amount of new credit lines and embedding in them a pricing structure that reduces the probability of borrowers drawing down on the lines. At the peak of the responses, we find that a one-standard-deviation increase in EPU causes a contraction in the supply of business loans between 3 and 5% on the extensive margin. 

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Abstract: We study the transmission mechanism of monetary policy through business loans and illustrate subtle aspects of its functioning that relate to loans' contractual characteristics and borrower-lender types. We show that the puzzling increase in business loans in response to monetary tightening, documented before the Great Recession, is largely driven by drawdowns from existing commitments at large banks. Spot loans also rise and take considerable time to adjust. Banks, nonetheless, do curtail credit supply by shortening maturities of new loans. Following the Great Recession, the mechanism has worked differently, with loan responses to monetary tightening displaying a significant downward shift. 

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Download the Online Supplementary Material with additional results and tests, especially for the post-Great Recession period.

Abstract: We develop a measurement strategy for the impact of foreign aid based on a regional spatial panel vector-autoregressive model (Sp P-VAR). We illustrate the strategy using Ugandan districts. Data for the regional units (ADM2) is assembled combining satellite sources for socio-economic activity, geo-located aid disbursements, and traditional household surveys. We find statistically significant positive and persistent effects of aid shocks on nighttime luminosity. Mapping nightlights to economic activity, the results suggest that the economic magnitude of these effects is small, but significant -- with a multiplier between 4 and 5 in the long-run. The VAR addresses endogeneity concerns associated with non-random aid assignment. 

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Download the Online Supplementary Material with additional results, diagnostic tests and robustness exercises.

Download the Technical Note describing the construction of the dataset used in the paper and the replication codes. Replication material will be available from the journal's website.

Abstract: This paper describes the properties of a set of puzzles that are behaviorally similar to those of the common Raven Progressive Matrix test. Our puzzles consist of a three-by-three grid of images with the lower right element omitted. Each image is characterized by six characteristics that can vary along several patterns. Lab experiments demonstrate that the puzzles become more challenging as the number of characteristics that change increases. Further, the ability to correctly solve our puzzles is shown to be correlated with scores on the Raven Progressive Matrix test and with performance in a beauty contest game. Due to the manner in which our puzzles are constructed, there are a large number of unique puzzles that can be generated for use in economics experiments using software described in the paper. Thus our puzzles are well suited for use as an alternative method to assess the cognitive ability of respondents and for use as a real effort task with multiple levels of cognitive difficulty. 

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Abstract: How firms make their pricing decisions is a fundamental question of macroeconomics. We use a laboratory experiment to examine individual choices in a price updating task that provide insight into how well state dependent models reflect behavior. We find that in general subjects behave as if they recognize the importance of a state dependent pricing strategy, but they are unable to ascertain this threshold with precision and they also exhibit a substantial degree of time dependence. As a result, they update prices too frequently, and perform statistically significantly fewer real effort profit-generating tasks than theoretically optimal under full state dependence, which results in statistically significantly lower profits as well. 

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Download the Online Supplementary Material with the full experimental details and additional results.

Abstract: I provide a new decomposition of the external constraint of a country in which, in addition to trade and valuation channel, adjustments in the stochastic discount factor and the spread between average international returns and risk-free rate can offset a current debt position. The importance of these channels is empirically assessed using US data. A primary contribution of the discount factor and secondary effects of excess and average returns are found in the non-detrended analysis, confirming the theoretical characterization of the valuation effects in previous literature. By using detrended data instead, the role of excess returns would be spuriously overestimated. 

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Download the Online Supplementary Material with the additional results and the model simulation details.

Abstract: We use a threshold methodology to investigate the importance of non-linear effects in the analysis of the inflation globalization hypothesis. Accounting for potential non-linearities in the Phillips Curve, we show that trade openness is not rejected as a threshold variable for the effects of domestic and foreign slack on inflation in many advanced economies, and we find a switch of the output gap slopes from one regime to the other that is consistent with the key predictions of the inflation globalization hypothesis. For some countries the threshold Phillips Curve model also leads to improvements in out-of-sample forecast over the linear Phillips models, especially at longer horizons. Contrary to most of the previous literature which ignores such non-linearities, our new approach provides some interesting empirical evidence supportive of the effect globalization has on a country's inflation dynamics. 

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Abstract: We develop a stylized theoretical model showing that countercyclical transfers from a wealthy donor to a poorer recipient generate a signal of altruistic donor motivation. Applying the model to OECD foreign aid (ODA) data we find the signal present in approximately one-sixth of a large set of donor-recipient pairs. We then undertake two out-of-model exercises to validate the signal: a logit regression of signal determinants and the growth effects of ODA from signal-positive pairs are compared to non-signal bearers. The logit indicates our signal meaningfully distinguishes donor-recipient pairs by characteristics typically associated with altruism. The growth exercise shows ODA from signal bearers displays stronger reverse causation and more positive long-run effects. Beyond foreign aid, our signal of altruistic motivation may be applicable to a wide range of voluntary transfers. 

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Abstract: According to the Globalization Hypothesis, global economic slack should progressively replace the domestic output gap in driving inflation as globalization increases. We investigate the empirical evidence in favor of this prediction by using a Time-varying VAR. Two main results emerge from the analysis: First, global slack is found to affect the dynamics of inflation in many countries, yet its influence did not become stronger over time. Second, a panel analysis that exploits the cross-section characteristics of our dataset shows that globalization, measured in terms of trade and financial openness, is positively related to the effects of global slack on inflation. We conclude that integration in the global economy is in fact important, but globalization has not yet induced changes in openness large enough to justify significant brakes in inflation dynamics. 

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Download the Supplementary Material referred to in the paper.

Download the manuscript of Zaniboni (2008) in the references.

Abstract: We explore the role of the cost channel in accounting for inflation persistence in the New Keynesian model with Calvo pricing. Hump-shaped responses of inflation to monetary shocks are obtained under purely nominal rigidities. 

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Download the Online Supplementary Material with the extended description of the model and robustness analysis.

Abstract: In this article, we briefly share with the reader our thoughts about the definition of the problems that a Central Bank Digital Currency (CBDC) tries to address, the design principles of a CBDC that arose from various conversations with Central Banks, national and supranational authorities, market participants and academics in various jurisdictions, a potential solution based on Algorand technology. Most of the content herein is borrowed from and covered in greater depth in our complete CBDC White Paper, along with updated additions from our recent participation to various pilots, studies and informed conversations on the topics.