Research

This paper studies how income inequality responds to commodity price shocks, identifying the underlying mechanisms at play. I provide novel cross-country evidence from commodity- exporting nations, showing that positive commodity price shocks reduce labor income inequality between skilled and unskilled workers. This reduction in inequality is primarily driven by a fall in the skill premium, arising from the expansion of unskilled-labor-intensive sectors, such as construction, which experience more rapid growth than skilled-labor-intensive ones, such as services. To interpret these results, I develop a quantitative multisector small- open-economy model that captures differences in skilled-labor intensity and sensitivity to commodity price shocks across sectors. I use the model as a laboratory to explore the distributional impacts of various policy responses to commodity windfalls, demonstrating how saving or spending these gains can either reinforce or moderate the reduction in inequality. This analysis provides new insights into the broader economic and social impacts of commodity price shocks in emerging markets. 

We document the macroeconomic patterns that characterize the recovery from financial crises. Using a sample of post-war recessions from around the world, we show that financial crises tend to be followed by jobless recoveries, with a sluggish recovery of employment relative to output. A departure from this empirical regularity tends to occur in emerging-market crisis episodes with high inflation, which feature a strong recovery of employment but persistent declines in real wages (or “wageless recoveries”). Our findings highlight the role of credit markets and inflation in shaping labor market recovery from recessions.

How do labor market institutions shape the propagation of inflation shocks? We address this question by studying Brazil’s annually indexed minimum wage in a highinflation context. Conventional wisdom suggests that inflation can “grease” labor market adjustments, but institutional wage-setting may alter this mechanism. Using administrative data, we show that indexation creates upward nominal wage rigidity: workers exposed to the policy experience fewer month-to-month wage increases before indexation events, and firms anticipate the policy by rigidifying wages of workers who will be newly bound. We evaluate the macroeconomic implications by introducing a cost-push shock to a New Keynesian model with heterogeneous labor and an indexed minimum wage. While staggered indexation amplifies the inflation as grease mechanism by introducing nominal rigidities, anticipation dampens it via intertemporal substitution. Overall, amplification matters more since cost-push shocks have a stronger “greasing” effect compared to a setting where the minimum wage indexes every period. Our findings demonstrate that even in high-inflation environments, the institutional structure of wage-setting fundamentally shapes how shocks propagate through the economy.

This paper studies the desirability of implementing price controls during inflation stabilization plans. To address this question, I develop a New Keynesian model with sticky information á la Mankiw-Reis (2002), which I use to assess the welfare costs associated with transitioning from a high-inflation to a low-inflation steady state. My findings show that even when the monetary authority commits to a new regime and agents do not anticipate future policy changes, welfare costs emerge during the transition due to firms’ gradual adaptation to the new regime. In this context, I introduce price controls as a policy tool aimed at mitigating the real costs of disinflation caused by information frictions. I then explore the trade-offs they create for policymakers. On the one hand, price controls offer macroeconomic benefits by coordinating prices during the transition, leading to a faster and less costly disinflation. On the other hand, they impose microeconomic costs by preventing firms from adjusting prices freely in response to idiosyncratic shocks. Ultimately, the optimality of price controls depends on the scale of the disinflation relative to the magnitude of the firm-level shocks.

Recently, the addition of hand-to-mouth (HtM) agents, whose consumption depends more or less directly on their income, has been seen as a source of amplification in business cycle models. Lost in this discussion is the fact that investment is by far the most cyclical component of aggregate income and investment is largely done by unconstrained agents. We consider a standard New Keynesian model with HtM agents and investment and study the impact of a monetary policy shocks. We find that under general conditions, an increase in the fraction of HtM agents tends to dampen the impact of monetary policy shocks.