WORKING PAPERS
Defensive Practices and TFP
I study the effect of firms’ defensive practices on aggregate total factor productivity (TFP) in a heterogeneous firm model of endogenous technology adoption and oligopolistic competition, in which non-productivity enhancing intangible investments deter competitors’ entry and imitation. I find that defensive practices affect three determinants of TFP: (i) production factor misallocation, (ii) productivity of the intangible investment, and (iii) first-best total production factor productivity (TPFP). I calibrate the model to U.S. economy, and leverage firm size and intangible investment distributions to discipline the quantitative relevance of the channels. The model suggests that preventing defensive practices increases TFP by 1.86 percent. I find that the first-best TPFP channel accounts for the bulk of the rise in the TFP: the increase in the within-firm production efficiency outweighs the fall in product differentiation. I validate the model prediction in the data.
2. Idiosyncratic Shocks and the Role of Granularity in Business Cycles (with Tatsuro Senga)
We study the role of idiosyncratic shocks in generating aggregate volatility in a quantitative dynamic, stochastic general equilibrium model wherein in principle idiosyncratic shocks may alone alter the shape of the distribution of firms. In our model economy, idiosyncratic shocks generate aggregate volatility by affecting two different layers of efficiency: productivity-static and capital-dynamic efficiency. We find that idiosyncratic shocks contribute up to 16 percent of the output volatility, 63 percent due to time-varying dynamic inefficiency of capital misallocation. More specifically, the idiosyncratic shocks to the 85 most productive firms account for 14.7 percent of the output volatility. Finally, we validate this model implication in the data.
Draft upon request.
3. Heterogeneous Firms, Rational Inattention, and the Business Cycle (with Tatsuro Senga)
We study fluctuations of uncertainty at the aggregate and idiosyncratic level in an economy where firms are heterogeneous in their total factor productivities and they can choose how much to learn about the aggregate and idiosyncratic states, respectively. The choice how much to allocate resources between the aggregate and idiosyncratic states is constrained by information processing capacity constraints. This creates an endogenous interaction between uncertainty at the micro and macro level and we quantify the relative contribution of the micro and macro volatility in generating uncertainty around aggregate and idiosyncratic state in driving aggregate fluctuations. We consider uncertainty shocks whereby the volatility of aggregate TFP and idiosyncratic TFP vary over time. The model implies that an increase in idiosyncratic volatility leads to reallocation of capacity from learning about aggregate state to learning about firm-specific shocks, leading to higher macroeconomic uncertainty. The relative strength of the macro and micro volatility in generating business cycle fluctuation hinges on the distribution of firms over information capacity constraints and productivities. We discipline the model by using a UK national survey executed by the Office for National Statistics that collects information about both macro and micro uncertainty.
Draft coming soon.
4. Uncertainty varying VAR model (with Filippo Arigoni)
Draft coming soon.
PUBLICATIONS
Public Investment in a Production Network: Aggregate and Sectoral Implications
Review of Economics and Statistics, forthcoming - Supplementary Material - with Alessandro Peri and Omar Rachedi