I am a senior economist at the Richmond Fed. Most of my research focuses on identifying the causes of business cycle, or detailing transmission mechanisms, with an eye to heterogeneity. Some of my most recent work also focuses on spatial and urban economics.
I am also currently in charge of the economics section of the International Society for Inventory Research and in the editorial board for the BE Journal of Macroeconomics and for the Brazilian Economics Review (Revista Brasileira de Economia).
(with Toan Phan, June 2020)
How does the risk of a disaster, such as a climate disaster or an epidemic, affect the default risk of a sovereign country and its ability to issue debt? To analyze this question, we introduce a rare disaster process into a canonical small open economy model with endogenous sovereign default following Eaton and Gersovitz (1981). We provide analytical and quantitative characterizations of the ex-ante and ex-post effects of the disaster risk on the country’s sustainable debt capacity and default risk. Then, we characterize the ex-ante and ex-post market and welfare effects of debt relief policies. We show that there is a forgiveness Laffer curve, in the sense that bond prices and debt capacity are nonmonotone in the degree of forgiveness. Finally, we study the market and welfare effects of the introduction of catastrophe or CAT bonds and compare them against the effects of debt forgiveness.
(with Christian Matthes, May 2020)
We measure the impact of household consumption shocks on aggregate fluctuations. These shocks affect household consumption directly, and production and prices indirectly through their impact on aggregate consumption. We show how to identify such shocks using prior knowledge of their differential impact across sectoral variables. Shocks independently affecting household consumption demand have accounted for almost 40% of business cycle fluctuations since the mid-1970s, playing a central role in recessions within that period. The inferred household consumption shock series correlates well with measures of changes in consumer confidence and household wealth.
We show that the 2006-09 US housing crisis had scarring local effects. For a given county, a 10% reduction in housing wealth from 2006 through 2009 led to a 3.3% decline in employment by 2018, and a commensurate decline in value added. This persistent effect occurred despite the shock having no significant impact on labor productivity and only a short-lived impact on household demand, house prices, and household leverage. We find that the local labor market adjustment to the housing shock was particularly costly: local wages did not respond, and long-run convergence in the local labor market slack instead took place entirely through population losses in affected regions. These results on population adjustment leading to mean-reversion in local slack extend the seminal observations by Blanchard and Katz (1992) to the effects of a temporary and identified local demand shock. Additionally, we show that the housing bust, compared with the housing boom, had asymmetric effects on employment and wages, indicating a role for downward wage rigidity.
(with Esteban Rossi-Hansberg and Pierre-Daniel Sarte, March 2020), Data Appendix, NBER Working Paper 26267. See related summary for general audience, "Optimizing the geography of occupations across U.S. cities", and VOX-EU column "Optimal policy responses to the growing polarisation of occupations in space"
In the U.S., cognitive non-routine (CNR) occupations associated with higher wages are disproportionately represented in larger cities. To study the allocation of workers across cities, we propose and quantify a spatial equilibrium model with multiple industries that employ CNR and alternative (non-CNR) occupations. Productivity is city-industry-occupation specific and partly determined by externalities across local workers. We estimate that the productivity of CNR workers in a city depends significantly on both its share of CNR workers and total employment. Together with heterogeneous preferences for locations, these externalities imply equilibrium allocations that are not efficient. An optimal policy that benefits workers equally across occupations incentivizes the formation of cognitive hubs, leading to larger fractions of CNR workers in some of today’s largest cities. At the same time, these cities become smaller to mitigate congestion effects while cities that are initially small increase in size. Large and small cities end up expanding industries in which they already concentrate, while medium-size cities tend to diversify across industries. The optimal allocation thus features transfers to non-CNR workers who move from large to small cities consistent with the implied change in the industrial composition landscape. Finally, we show that the optimal policy reinforces equilibrium trends observed since 1980. However, these trends were in part driven by low growth in real-estate productivity in CNR-abundant cities that reduced welfare.
(with Scott Fulford) forthcoming at Review of Economics and Statistics. FRB-Richmond Working Paper Version. - Download Online Appendix - Download Replication Files. Formerly "The Benefits of Commitment to a Currency Peg: The Gold Standard, National Banks and the 1896 U.S. Presidential Election". See related coverage in Richmond Fed's Economic Brief, with Karl Rhodes
We develop a method to use the one-time cross-sectional impact of a cleanly identified shock to identify its aggregate impact through the use of a factor model. We apply this methodology to evaluate the importance of commitment to a currency peg for macroeconomic outcomes during the gold standard period in the U.S. The presidential election in 1896 provides a cleanly identified positive shock to commitment to the gold standard. After the election, national-bank leverage increased substantially, particularly in states where gold was in greater use. Using the latent factor identified by the election, we find that full commitment to gold had the potential to reduce the volatility of real activity overall by a significant amount in the last two decades of the 19th century, as well as substantially mitigate the economic depression starting in 1893.
(with Kartik Athreya and Andrew Owens) Quantitative Economics (November 2017), 8: 761–808. FRB-Richmond Working Paper Version. See related coverage in Richmond Fed's Economic Brief, with Jessie Romero.
The aftermath of the recent recession has seen calls to use transfers to poorer households as a means to enhance aggregate economic activity. The goal of this paper is to study the effects of wealth redistribution from rich to poor households on consumption and output in the short run. We first demonstrate analytically how the direction and size of the output effects of such interventions depend on labor supply decisions. We then show that in a standard incomplete‐markets model extended to allow for nominal rigidities and parametrized to match the U.S. wealth distribution, wealth redistribution does lead to a temporary boom in consumption but a far smaller increase in output. Our results suggest substantial value in empirical research uncovering the distribution of marginal propensities to work in the population.
For a given frequency of price adjustment, monetary non-neutrality is smaller if older prices are disproportionately more likely to change. Selection for the age of prices provides a complete characterization of price-setting frictions in time-dependent models. Selection for older prices is weaker and non-neutralities are larger if the hazard function of price adjustment is less strongly increasing. Selection is weaker if there is heterogeneity in price stickiness. Finally, selection is weaker if durations of price spells are more variable. In particular, the Taylor (1979) model exhibits maximal selection for older prices, whereas the Calvo (1983) model exhibits no selection.
(with Pierre-Daniel Sarte and Thomas Lubik). Journal of Monetary Economics (November 2015): 264-283. FRB-Richmond Working Paper Version Download Supplementary Material. See related coverage in Richmond Fed's Economic Brief, with Karl Rhodes.
Beginning in the mid-1980s, U.S. business cycles changed in important ways, notably via distinctive shifts in the comovement and relative volatilities of labor productivity, hours, output, and inventories. Inventories provide additional information relative to aggregate investment regarding firms׳ intertemporal decisions, and thus additional insight in explaining business cycles. We show that variations in the discount factor estimated using inventories, which may be interpreted as fluctuations in a generalized investment wedge, play a key role in explaining the shifts in U.S. business cycles observed after the mid-1980s. Moreover, these variations correlate well with independent measures of credit market frictions.
After emerging market crises, value added falls more in manufacturing industries that normally exhibit higher inventory/cost ratios. Moreover, the difference in value added between manufacturing industries with different inventory/cost ratios persists years into the recovery. A shock to aggregate TFP cannot by itself match this pattern. In contrast, a persistent increase in the cost of foreign capital can. In the context of a calibrated multisector small open economy model, a shock to the cost of foreign capital consistent with the cross-industry data leads, 3–5 years after the onset of the crisis, to an average reduction of output relative to a trend of 5.4 percent.
(with Marianna Kudlyack, Revised June 2012) Richmond Fed Working Paper 12-04
We conduct an accounting exercise of the role of worker flows between unemployment, employment, and labor force nonparticipation in the dynamics of the aggregate unemployment rate across four recent recessions: 1982-1983, 1990-1991, 2001, and 2007-2009 (the "Great Recession"). We show that, whereas during earlier recessions it was sufficient to examine the flows between employment and unemployment to account for the dynamics of the unemployment rate, this was not true in the Great Recession. The increased importance of the flows between nonparticipation and unemployment is documented across all age and gender groups.
(with Carlos Carvalho). Revised 2008 (key results subsumed into "Selection and Monetary Non-Neutrality in Time-Dependent Pricing Models")
Federal Reserve Bank Publications (Economic Quarterly)
Inequality Across and Within US Cities around the Turn of the Twenty-First Century (First-Fourth Quarter 2017) See related coverage in Richmond Fed's Economic Brief, with Jessie Romero.
The Heterogeneous Business Cycle Behavior of Industrial Production (Third Quarter 2016) with Jackson Evert
How Can Consumption-Based Asset-Pricing Models Explain Low Interest Rates? (Third Quarter 2014)
The Business Cycle Behavior of Working Capital (Fourth Quarter 2013)
When Do Credit Frictions Matter for Business Cycles? (Third Quarter 2012)
Publications in Portuguese
Estimativa de Curva de Phillips com Preços Desagregados Economia Aplicada v. 10, n.1 (jun-mar 2006), 137-145