Research

Macroeconomic Uncertainty and Capital-Skill Complementarity, Job Market Paper, Latest Draft Here

Abstract: In this paper I investigate the effects of macroeconomic uncertainty on relative wages and relative employment of skilled to unskilled workers. First, I show empirically in a structural VAR model that uncertainty shocks are recessionary. As a result of the uncertainty shock, skilled workers experience a steeper fall in their wages than unskilled workers and the relative employment increases. Second, I propose a dynamic New Keynesian model consistent with these findings. In this model the presence of capital-skill complementarity allows to distinguish different roles of skilled and unskilled labor in production. The uncertainty shock is contractionary and pushes the demand for labor and capital inputs down, relative wages fall and relative employment increases. The model uncovers a novel propagation channel relying on capital-skill complementarity and precautionary labor supply, which explains the effects of heightened uncertainty on the divergence of income and employment between skilled and unskilled labor.

JEL classification: Stochastic volatility; Capital-skill complementarity; Relative wages; Skill premium.

Keywords: E32; J31.

Financial Frictions and the Portfolio Transmission Channel, jointly with Aurélien Eyquem and Céline Poilly

Abstract: We investigate the effects of government spending uncertainty shocks in the Euro Area both empirically and theoretically. Empirically, a stochastic volatility model is used to extract a measure of uncertainty in the government spending to GDP ratio. This measure is then introduced in a structural VAR model to show that uncertainty shocks have recessionary, persistent and humped-shaped effects. We develop a dynamic New Keynesian model with financial frictions applying to a portfolio of equity and long-term government bonds where both assets are imperfectly substitutable to account for these effects. Key parameters of the model are then estimated using a mix of Simulated Method of Moments and Minimum Distance Estimation, and the effects of a government spending uncertainty shocks are correctly replicated. We discuss the various transmission channels and show that financial frictions in general and the portfolio channel - the fact that both assets are imperfectly substitutable - in particular, act as critical amplifiers of the usual transmission channels already discussed in the literature.

JEL classication: E62; E52.

Keywords: Government spending uncertainty, stochastic volatility, portfolio adjustment cost.

Uncertainty, income inequality and household debt, jointly with Samuel Ligonnière, Work in Progress