Research

• The Welfare Costs of Distortions with Imperfectly Contestable Markets (jointly with Anthony Savagar) (work in progress)

We study the welfare implications of distortions, such as markups and returns-to-scale, when markets are imperfectly contestable. This means that firm entry is slow to arbitrage quasi-rents. First, we present evidence on differences in speed of firm entry adjustment across US industries. In some industries, such as hospitality, firms respond rapidly to profit opportunities, arbitraging quasi-rent quickly. Whereas, in other industries, such as construction, entrants respond slowly, sustaining incumbents’ quasi-rents for longer. We develop a model of dynamic firm entry, which shows that the sluggishness of firm entry magnifies the welfare costs of distortions.

• Capital portfolio, collateral constraints and the measured efficiency wedge (jointly with Alfred Duncan) (work in progress)

We build a general equilibrium model with a continuum of differentiated yet substitutable productive capital assets where agents access financing based on the composition of their balance sheet portfolio. A loss of market confidence (a negative financial shock) leads to lowered access to finance and causes firms to reshuffle their holdings of productive assets, away from the more expensive long term assets to the easily accessible short term assets. This reallocation seems to improve the productivity of the deployed capital, which shows up as an increase in measured TFP. We find support for this in the U.S. data. 

• A Climate model for the Baltics (jointly with Patrick Grüning)

We build a medium scale General Equilibrium model for the Baltics,  calibrated separately for Latvia and Lithuania, to check transition impacts of different kinds of climate-specific fiscal and macroprudential policies.

• Capital portfolio and the collateral constraint: A policy perspective (jointly with Alfred Duncan) (work in progress)

We investigate the monetary policy implications of the asset reallocation by firms following a financial shock in a New Keynesian setting. We also investigate what consequences a monetary policy shock has in this setting and what are the policy implications for welfare.