2. Investment Irreversibility in a Granular World (with Tatsuro Senga)

Investment irreversibility plays a prominent role in reducing fluctuations in both aggregate output and investment when aggregate uncertainty stems from idiosyncratic shocks to large firms—rather than aggregate shocks, under which irreversibility has little effect on volatility. The key is that idiosyncratic shocks are sufficiently volatile to cause the irreversibility constraint to bind cyclically for a significant mass of firms. Consequently, irreversibility hampers productivity-enhancing capital reallocation and impedes household consumption smoothing, increasing real wage volatility and dampening aggregate fluctuations. This stabilizing role, achieved by deterring disinvestment and limiting the depth of recessions, has implications for policy design: merely subsidizing capital liquidation yields only modest welfare gains. This is because such policies lead to excessive disinvestment; firms, compensated by the government, do not internalize the aggregate resource losses, thereby destabilizing the economy and offsetting the gains from smoother capital reallocation.

3. The Macroeconomic Effects of Defence Expenditure: Evidence from Spain (with Alloza, Domínguez-Díaz and Durá)

We estimate the macroeconomic effects of defence expenditure using a novel dataset covering the universe of defence procurement contracts in Spain over 30 years. Our defence procurement data overcomes identification challenges posed by implementation lags inherent in traditional government spending, as contracts are awarded years before production begins and spending is recorded in government national accounts only upon delivery. Using local projections, we find that GDP effects take time to materialise, become sizeable, but remain transitory. That is, while defence investment has relevant economic consequences, these are bound to occur in the medium run insofar as the spending process is hindered by implementation lags. A DSGE model calibrated to our empirical setting yields two main findings. First, reducing implementation lags to US levels would meaningfully frontload macroeconomic effects. Second, defence spending delivers more transient and smaller long-run effects than general public investment projects.

WORK IN PROGRESS

1. Defense R&D and Productivity Growth (with Basso, Pozzetti and Rachedi)

Draft coming soon.

2. Firms payouts and Innovation Under Asymetric Information (with Bonelli, Errico and Pollio)

Draft upon request.

3. Heterogeneous Firms, Rational Inattention, and the Business Cycle (with Tatsuro Senga)

Draft coming soon.

PUBLICATIONS

Public Investment in a Production Network: Aggregate and Sectoral Implications (with Alessandro Peri and Omar Rachedi )

The Review of Economics and Statistics, 2023 

Aggregate and sectoral effects of public investment crucially depend on the interaction between the output elasticity to public capital and intermediate inputs. We uncover this fact through the lens of a New Keynesian production network. This setting doubles the socially optimal amount of public capital relative to the one-sector model without intermediate inputs, leading to a substantial amplification of the public-investment multiplier. We also document novel sectoral implications of public investment. Although public investment is concentrated in far fewer sectors than public consumption, its effects are relatively more evenly distributed across industries. We validate this model implication in the data.